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Global stocks extending losses this week underscore that a reality check on AI and tech valuations is underway. The retreat across global markets signals that investors are beginning to demand profits rather than promises from the sector that has driven much of this year’s rally. Equities fell sharply on Wednesday as confidence weakened over the sustainability of AI and tech valuations. Asian markets suffered their steepest declines in months, with Japan’s and South Korea’s tumbling and SoftBank (TYO: ) dropping as much as 14% amid renewed doubts about the value of AI-linked investments. European futures turned lower, and US contracts pointed to further weakness. Risk-sensitive currencies slipped, rose as investors sought safety, and briefly dipped below $100,000 before recovering. The innovation behind AI and tech is genuine. But innovation alone cannot justify valuations that have, in many cases, outpaced earnings by extraordinary margins. Markets are now demanding proof instead of expectation. Over the past year, enthusiasm for AI-driven growth has fuelled record-breaking market gains. Yet the rally has been narrow, driven by a handful of mega-cap names carrying disproportionate market weight. When confidence fades in those few, entire indices feel the impact. What we are seeing is not panic but price discovery — a correction after months of momentum that left little room for adjustment. This phase, though uncomfortable for some investors, is both necessary and healthy. It restores discipline to markets and forces a distinction between companies genuinely improving productivity and those priced mainly on speculation. Corrections are rarely welcomed in the moment, but they often pave the way for more durable expansion. For some time, we at deVere have warned of a widening gap between technological progress and corporate profitability. The AI and tech ecosystem has been building what I describe as a circular economy — chipmakers selling to hyperscalers, hyperscalers to software developers, and developers to one another. This creates an illusion of constant growth, yet much of it recycles demand within the same ecosystem. Until that cycle produces measurable profits, valuations will stay exposed. The renewed appeal of gold and the yen, alongside a stronger dollar, shows that investors are shifting toward defensive positions. Even Bitcoin’s brief fall under six figures demonstrates that speculative assets are also being re-evaluated through a lens of risk. The correction spans asset classes and is a reminder that liquidity alone cannot sustain high valuations forever. Amid the volatility, there are opportunities. Markets are adjusting after an extraordinary period of optimism. For long-term investors, this is when genuine value begins to emerge. The key is not withdrawal from innovation but concentration on areas where AI and tech are already creating measurable gains. AI’s practical impact is becoming visible in specific sectors: in energy efficiency, where intelligent systems cut waste and optimise supply; in logistics, where automation improves speed and accuracy; in healthcare, where AI reduces diagnosis times and expands treatment capacity; and in financial services, where advanced data processing lowers costs and strengthens decisions. These are the fields where potential is turning into real productivity — and where sustainable profits are likely to grow. Investors should not interpret this as the end of the AI era. It represents evolution — a stage that every major technological wave experiences. The internet revolution of the late 1990s, the mobile computing surge of the 2000s, and the expansion of renewable energy in the 2010s all passed through similar corrections. Each time, expectations were reset, weaker players exited, and the strongest innovators emerged stronger and more profitable. AI and tech remain the dominant forces of this decade, but the market is now demanding accountability. The question has shifted from “how revolutionary is this technology?” to “how profitably can it be deployed?” Investors who adapt to this shift — who remain engaged yet selective — will be best positioned for the next stage of sustainable growth. Markets teach the most during periods of volatility. Progress is uneven, innovation alone doesn’t guarantee financial success, and discipline remains the foundation of long-term wealth creation. The current slump exposes the gap between promise and profit — a gap that must close for the next bull phase in technology to take shape. Companies that bridge it will define the next chapter of global growth. Those who invest with clarity and focus on productivity over speculation will be the real winners. AI’s story is far from finished. The excitement surrounding it is justified, but valuation must now meet reality. This correction marks the start of a more sustainable phase; one grounded in results, not rhetoric.
