Tech stocks fall again as selloff deepens

A tech stock selloff extended into a second consecutive session Tuesday, with the Nasdaq Composite dropping 2% as investors grew increasingly skeptical that artificial intelligence spending will produce the earnings growth already priced into valuations across the sector.

At a Glance

• Nasdaq Composite fell 523 points, or 2%, to 25,643 on Tuesday, following a 1.3% decline Monday
• S&P 500 shed 1.3%; the Dow Jones Industrial Average was nearly flat, down less than 0.1%
• South Korea's Kospi tumbled 10% to 8,203.84, reflecting a global spread of tech sector pressure
• Traders now price in a roughly 90% probability of at least one Fed rate hike by year end, up from 57% just one week ago
• Bank of America Institute data show only about 3% of its customers currently pay for AI services, spending a median of $20 per month

Two Days of Losses and What They Signal

Tuesday's decline was not driven by a single piece of bad news. James Reilly, senior market economist at Capital Economics, framed it plainly in a note to clients: the back-to-back drops illustrate rising volatility stemming from what he called "frothy earnings expectations and/or valuations." That framing matters because it shifts the diagnosis away from an external shock and toward a structural repricing of expectations built up over months of AI enthusiasm.

Reilly also flagged that the recent pullback has pushed sector stalwarts Meta Platforms and Microsoft into bear market territory, defined as a drawdown of at least 20% from a recent peak. The more pointed warning, though, concerns semiconductors. "If the new market leaders, semiconductor firms, also start to struggle, the stock market would be in big trouble," he wrote. Nvidia fell 2.8% during midday trading Tuesday, and Broadcom dropped 2.3%, so that concern is not abstract.

Alphabet, one of the Magnificent Seven, slipped 1.1%. SpaceX, which had plunged 16% on Monday, partially recovered Tuesday, rising $8.81, or 5.7%, to $163.41. The rebound did little to erase the larger pattern: SpaceX listed its shares earlier this month, briefly traded above $200, and has since retreated sharply as investors question whether a valuation exceeding $2 trillion can be defended by current fundamentals.

The AI Monetization Gap

The core tension driving this selloff is the distance between AI adoption and AI revenue. Consumers are using ChatGPT, Claude, and similar tools at scale, but the vast majority use free tiers. Bank of America Institute data quantify the gap precisely: only around 3% of BofA customers pay for AI services, and that cohort skews heavily toward households earning more than $125,000 annually. Their median monthly spend is $20.

The household paying base has grown 38% since 2024, which is notable momentum. BofA Global Research projects the U.S. AI services market could eventually reach $75 billion annually as productivity, search, entertainment, shopping, and personal assistant use cases deepen and higher tier subscription plans mature. The phrase "could scale" carries weight here: $75 billion is a ceiling scenario, not a baseline, and it depends on consumer willingness to pay holding up as more capable and more expensive plans come to market.

Nigel Green, CEO of financial consultancy deVere Group, put the investor posture shift bluntly: "For a long time, the market treated AI spending as unquestionably positive. Investors are now becoming more demanding. They want evidence that unprecedented spending will translate into unprecedented profits." That demand for proof over promise is what analysts mean when they talk about multiple compression in high-growth tech.

Rate Hike Expectations Compound the Pressure

Equity valuation math becomes less forgiving as discount rates rise, and the interest rate backdrop shifted meaningfully last week. The Federal Reserve's rate-setting committee signaled it could raise borrowing costs in 2026, citing inflation pressures tied to rising oil prices connected to the war in Iran. That is a notable pivot from the rate-cut narrative that underpinned much of the market's 2024 and early 2025 rally.

Traders moved quickly to reprice. CME Group data show the probability of at least one federal funds rate increase by year end jumped to nearly 90% from 57% just one week prior. A move of that magnitude in rate expectations over such a short window typically reflects genuine recalibration rather than noise.

Consumer price data due Thursday are expected to show inflation accelerating to 4.1% in May from 3.8% in April, per economist forecasts. If the print comes in at or above that level, it would reinforce the Fed's hawkish lean and add another layer of pressure on long duration assets, including growth-oriented tech stocks trading at elevated price-to-earnings multiples.

Global Spillover

The selloff did not stay within U.S. borders. South Korea's Kospi fell 10% to 8,203.84, a decline amplified by domestic concerns about regulatory scrutiny in the country's semiconductor sector. South Korea is home to major chip memory producers, so any signal of tighter oversight compounds what is already a difficult demand and pricing environment for parts of the semiconductor supply chain.

Bret Kenwell, U.S. investment and options analyst at eToro, told CBS News that broader global volatility in tech is feeding back into U.S. shares. Cross-border correlation in tech selloffs has been elevated since 2022, and Tuesday's session reinforced that pattern.

Frequently Asked Questions

What is causing the Nasdaq selloff in June 2025?

Analysts point to a combination of stretched AI-related valuations, thin evidence of monetization at scale, and a sharp upward revision in Federal Reserve rate hike expectations. No single catalyst triggered the two-day decline; it reflects a broader reassessment of growth assumptions baked into tech stock prices.

How many consumers are actually paying for AI tools?

Bank of America Institute data indicate roughly 3% of BofA customers pay for AI services as of the latest reporting period. Those paying users spend a median of $20 per month and are concentrated in higher income households earning above $125,000 annually.

What is the Federal Reserve's current rate outlook?

The Fed's policy committee last week opened the door to a rate increase in 2026. CME Group market pricing now puts the probability of at least one hike by year end at close to 90%, a significant jump from 57% the prior week.

Is SpaceX's stock decline part of the same trend?

SpaceX shares partially recovered Tuesday after falling 16% Monday, but the stock has broadly retreated from the highs above $200 reached shortly after its IPO earlier this month. Investor concern centers on whether the company's valuation, which exceeds $2 trillion, is sustainable given current revenue and profit trajectories.

What to Watch Next

Thursday's consumer price index release is the most immediate catalyst on the calendar. A reading at or above the forecast 4.1% would likely sharpen rate hike expectations further and test whether tech valuations can absorb additional discount rate pressure. Semiconductor earnings guidance, and any commentary from Nvidia or Broadcom on AI infrastructure demand, will be equally telling about whether the sector's growth story still holds at current price levels.