Artificial intelligence (AI) stocks are flashing warning signs as semiconductor shares suffer their steepest relative decline in years.
In this line, the Semiconductor Index (SOX) has fallen for eight consecutive trading sessions, while global technology equity funds recorded $4.8 billion in outflows, even as the broader market attracted capital, according to data shared by The Kobeissi Letter on October 19.
The SOX-to-S&P 500 ratio has dropped to 1.45, its lowest level since April 2026. Since its mid-June peak, the ratio has declined 0.46 points, or 24%. Over the same period, the Philadelphia Semiconductor Index has fallen 24%, while the S&P 500 has gained 2%.
Dot-com bubble comparisons
The decline echoes the aftermath of the 2000 Dot-com bubble, although the ratio remains 142% above its 2022 low of 0.60. Some AI infrastructure companies continue to report strong demand and earnings growth, but the reversal highlights the risks of concentrated AI exposure as investor sentiment shifts.
The SOX’s eight-session losing streak through October 16 was its longest since the 2008 financial crisis. The index fell 3.83% on October 16, extending its decline to 16% from its October 6 advance.
The selloff has affected major chipmakers, including Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), Broadcom (NASDAQ: AVGO), Micron Technology (NASDAQ: MU) and Intel (NASDAQ: INTC).
Investors are questioning whether AI spending will generate sufficient returns to justify current valuations, particularly amid rising financing costs and concerns about future demand.
Technology funds outflows
On the other hand, global technology equity funds recorded $4.8 billion in outflows in the week ending October 14, their largest weekly withdrawal in at least five weeks.
U.S. technology funds accounted for $5.2 billion in outflows. Meanwhile, global equity funds attracted $20 billion, including $13 billion into US equities, suggesting investors were rotating out of technology rather than abandoning stocks. The shift followed $5.4 billion in technology fund inflows the previous week.
BREAKING: Global technology equity funds recorded -$4.8 billion in outflows in the week ending October 14th, their largest weekly outflow in at least 5 weeks.
— The Kobeissi Letter (@KobeissiLetter) October 19, 2026
US tech funds drove the withdrawals, with -$5.2 billion in outflows.
Meanwhile, all global equity funds attracted… pic.twitter.com/mzQAw7nnn4
Investors are also scrutinizing the profitability of AI investments. In this vein, AllianceBernstein portfolio manager James Russo expects AI capital expenditure growth to slow in 2027 and 2028 as borrowing costs rise.
TS Lombard economist Dario Perkins has warned that rising debt, excess chip inventories and potential project cancellations could undermine the investment cycle. Hyperscaler spending could reach $1.2 trillion, but the returns remain uncertain.
Comparison to Dot-com bubble
However, the AI boom differs from the dot-com bubble. For instance, this is highlighted by the fact that Fidelity noted in February 2026 that technology valuations remained below dot-com-era extremes and companies had largely funded AI spending from earnings rather than debt.
Whether the selloff deepens will depend on whether future AI earnings and cash flows justify current valuations.
Sustained demand could make the decline a correction, while disappointing returns could trigger a prolonged repricing.
Featured image via Shutterstock
The post AI stocks are flashing a real bubble-burst warning that’s hard to ignore appeared first on Finbold.