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A major technology stock selloff stretched into a second day Tuesday as investors questioned whether artificial intelligence will generate the profits that have fueled lofty valuations for companies such as Alphabet, SpaceX and Nvidia.

The tech-heavy Nasdaq Composite shed 580 points, or 2.2%, to close at 25,587. The decline marks a second straight day of losses after a 1.3% decline on Monday.

“Today’s big falls in tech stocks without any major catalyst are another illustration of rising volatility in these stocks, a result of what increasingly looks like frothy earnings expectations and/or valuations,” James Reilly, senior market economist with Capital Economics, said in a note to clients.

The drop in tech stocks in recent weeks has put industry stalwarts such as Meta Platforms and Microsoft in “bear” market territory — when a company’s shares drop at least 20% for their most recent peak — Reilly added.

“If the new market leaders, semiconductor firms, also start to struggle, the stock market would be in big trouble,” he said.

The S&P 500 sank 1.4%, while the Dow Jones Industrial Average fell less than 0.1%.

After a rocky start, some tech stocks rebounded by the end of the trading day. Google parent company Alphabet fell 0.8%, while Amazon closed 0.6% higher. Chipmaker Nvidia tumbled 4.2%, while Broadcom sank 3.1%. SpaceX shares ticked up $1.51, or 1%, to close at $156.11. 

Earlier this month, investors piled into SpaceX stock after the company’s initial public offering, sending it above $200 within days. But the stock has retreated since June 17 as investors fret over whether the company can justify its valuation exceeding $2 trillion. On Monday, SpaceX shares plunged 16%.

Investors look for reassurance

For months, Wall Street has embraced tech stocks, helping drive the market to record highs on optimism that companies pouring billions into AI would translate those investments into faster revenue growth and higher profits. 

But investors are now demanding more evidence that the spending will pay off. Although apps like OpenAI’s ChatGPT and Anthropic’s Claude have made a splash among consumers, the vast majority of those users employ free versions of these and other AI tools. 

For example, new data from the Bank of America Institute show that only about 3% of its customers — mostly households with more than $125,000 in annual income — pay for AI services. Those customers spend a median of $20 per month on the apps. 

Yet usage of the technology is also growing quickly and more broadly, the financial giant noted in a report, underlining AI’s enormous commercial potential. The number of households paying for AI services has jumped 38% since 2024, the firm found.

Said Bank of America Institute: “As AI becomes embedded across productivity, search, entertainment, shopping and personal assistant use cases, and higher‑tier subscription plans emerge, BofA Global Research expects the U.S. market could scale to $75 billion annually, supported by rising consumer willingness to pay for convenience and time-saving utility.”

“For a long time, the market treated AI spending as unquestionably positive,” Nigel Green, CEO of the financial consultancy deVere Group, said in an email. “Investors are now becoming more demanding. They want evidence that unprecedented spending will translate into unprecedented profits.”

Global effects

The tech rout spread beyond the U.S., with South Korea’s Kospi tumbling 10.0% to 8,203.84. Signs of greater regulatory scrutiny in the country’s semiconductor sector also added to the hand-wringing.

Bret Kenwell, a U.S. investment and options Analyst at eToro, told CBS News that a broader weakness and global volatility in tech stocks is weighing on U.S. shares. 

While the stock selloff ignited sharp declines, Green said he doesn’t believe markets are in trouble.

“What we’re witnessing now is investors demanding proof instead of promises,” he said. “That shift can be uncomfortable, but it’s ultimately healthy.”

Anxiety over interest rates

Anxiety is also growing that rate hikes later this year could hamper growth. The Federal Reserve’s rate-setting committee last week opened the door to an increase in borrowing costs in 2026, as it seeks to keep a lid on accelerating inflation driven by months of rising oil prices stemming from the war in Iran.

Economists forecast that a measure of inflation for U.S. consumers — due out Thursday from the government — will have accelerated to 4.1% in May from 3.8% in April.

Traders are betting on a nearly 90% chance the Fed will raise its federal funds rate at least once by the end of the year, up from the 57% chance seen just a week ago, according to data from CME Group.