When Wall Street's AI Party Hit a $730 Billion Hangover
You've been watching tech stocks sprint like they're on rocket fuel for months. Nvidia crossing $5 trillion. Palantir up 152% in a year. Every earnings call sounds like a love letter to artificial intelligence. Then suddenly—boom. November 4, 2025 arrives and $730 billion evaporates in a single trading day.
Here's what actually happened, why it matters to Indian investors, and whether this is the beginning of a much bigger problem.
The Catalyst: When "The Big Short" Guy Said "I'm Out"
Michael Burry—the investor who made billions betting against the housing market in 2008—just placed a $1.1 billion wager that AI stocks are about to collapse. His hedge fund bought massive put options against Nvidia and Palantir, essentially betting their share prices will tank.
This wasn't a quiet filing. Burry posted on X for the first time in two years with a cryptic warning: "Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play".
Four days later, he disclosed the bet. Markets freaked out.
On November 4, the Nasdaq Composite plunged 2%, wiping out its biggest gains since October 10. The S&P 500 dropped 1.2%. Six of the "Magnificent Seven" AI stocks—the companies driving the entire market—fell simultaneously.
The damage was brutal:
- Palantir crashed 8% despite beating earnings expectations
- Nvidia fell 4%
- Amazon dropped 2%
- Reddit tumbled 8.4%
- Meta declined over 5%
In Asia, it got worse. SoftBank—heavily invested in AI through its stake in Arm Holdings—lost $32 billion in market value as its stock plummeted 22% over two days. Japan's Nikkei 225 fell 2.5%. South Korea's KOSPI dropped 2.85%.
Why This Wasn't Just About Michael Burry
Burry's bet was the spark, but the bonfire was already stacked. Three major Wall Street CEOs warned the same week that a market correction was coming.
Goldman Sachs CEO David Solomon said a 10-20% pullback in equity markets was "likely" within 12-24 months. Morgan Stanley's Ted Pick agreed, calling corrections "normal" and predicting markets would shift focus to actual earnings rather than hype.
JPMorgan's Jamie Dimon had already warned the month before of a "significant correction" due to geopolitical tensions and inflated valuations.
Translation: The people running the biggest banks in the world think stocks are overpriced. And they said it out loud. At the same time.
Investors heard "sell" loud and clear.
The Real Problem: Valuations That Make No Sense
Let's talk about Palantir for a second. The data analytics company reported stellar earnings—revenue beat expectations, guidance was raised. Normally, stocks soar on news like that.
Instead, Palantir dropped 8%.
Why? Because it's trading at 254 times forward earnings. For context, Nvidia—literally the most valuable company in the world at $5 trillion—trades at just 35 times forward earnings.
Palantir is priced like it's going to rule the world for the next century. But investors are starting to ask: What if it doesn't?
The S&P 500's forward price-to-earnings ratio is now above 23—levels not seen since the dot-com bubble peak in 2000. Companies are valued based on what AI might do, not what it's actually earning today.
The Spending Spree That Won't Stop
Here's where it gets crazy. Big Tech is pouring unprecedented amounts into AI infrastructure.
2025 capital expenditures:
- Amazon: $125 billion, with plans to increase in 2026
- Google: $91-93 billion, up from $85 billion forecast
- Microsoft: $34.9 billion this quarter alone—a 74% increase
- Meta: $70-72 billion for 2025, nearly double its 2024 spend
Combined, these four companies are spending roughly $370 billion on data centers, AI chips, and computing power.
The problem? They've invested $560 billion over two years but generated only $35 billion in AI-related revenue.
That's a revenue-to-investment ratio that screams "bubble" to anyone paying attention.
The Dot-Com Comparison Everyone's Whispering About
Former Biden economic adviser Jared Bernstein pointed out that AI investment as a share of the economy exceeds the internet bubble era by nearly one-third. The parallels are impossible to ignore.
In the late 1990s, internet companies raised billions based on traffic and "eyeballs," not profits. Most crashed when investors demanded actual business results.
Today, AI companies command valuations in the hundreds of billions based on "transformative potential" rather than current profitability. OpenAI is valued at $500 billion despite losing billions annually. Its projected $13 billion in 2025 revenue doesn't come close to covering its $300 billion, five-year computing commitment with Oracle.
Sound familiar?
What This Means for Indian Investors
Indian markets didn't escape unscathed. On November 5, the BSE Sensex fell 519 points (0.6%), and the Nifty dropped 165 points (0.6%). IT stocks led the decline, with Infosys, Tech Mahindra, and Tata Motors among the top losers.
The Nifty IT index, which tracks Indian tech stocks, corrected 0.6% as of November 3. These companies—TCS, Infosys, Wipro, HCL Tech—are heavily exposed to global tech spending. When Wall Street sneezes, Indian IT stocks catch a cold.
The rupee also weakened, trading at ₹88.52 per dollar as of November 5. Foreign institutional investors (FIIs) turned net buyers in October after three months of selling, but the fragile sentiment could reverse quickly if global tech continues crashing.
For Indian investors holding IT stocks:
- Valuations in the US matter because Indian IT firms service these companies
- A prolonged AI spending slowdown could hit revenues for Infosys, TCS, and Wipro
- Rupee depreciation may provide some cushion through better export realizations
Is This the Big Crash or Just a Speed Bump?
Here's the honest answer: Nobody knows.
Cryptocurrencies collapsed alongside tech stocks. Bitcoin dipped below $100,000 for the first time since June. The broader crypto market lost over $1 trillion since early October, with $1.78 billion in liquidations in a single day.
Wells Fargo advised investors to trim tech exposure and rotate into industrials, financials, and utilities—sectors with lower valuations.
But many investors still believe in AI's long-term potential. Liz Young Thomas, head of investment strategy at SoFi, said on CNBC: "I don't think this is concerning today. We're going to grow into valuations".
Michael Burry himself isn't infallible. He called for a "sell" in January 2023, then admitted he was "wrong" two months later as the market rallied 21%. His put options on Nvidia and Palantir are reportedly underwater right now, with both stocks trading above their Q3 levels.
The Bottom Line
$730 billion didn't just vanish because one investor placed a bet. It evaporated because markets were already nervous about unsustainable valuations, a spending frenzy that dwarfs revenue, and CEOs of the world's biggest banks warning that a correction is overdue.
AI is real. The technology will change everything. But that doesn't mean every AI stock deserves a valuation that assumes perfection for the next decade.
If you're holding tech-heavy portfolios—especially AI darlings trading at triple-digit P/E ratios—now's the time to ask yourself: Am I investing in the future, or am I just holding someone else's bubble?
History suggests the difference matters. A lot.