Tech and AI Stocks Sell Off, This Reckoning Was Always Coming

The Tech and AI Valuation Reality Check

When it comes to stock prices, they usually rise when fundamentals and earnings improve.

The catch is that markets do not move purely on logic. They are heavily influenced by emotion driven buying and selling, and that can be a double edged sword.

In names like Nvidia, Broadcom, Microsoft, and Palantir, and even across the ASX (which tends to track US risk sentiment closely), prices can become dominated by future expectations rather than today’s fundamentals. When a stock is priced for perfect execution and strong forward growth, it does not take much to shake confidence. The moment a catalyst introduces uncertainty, the trade can unwind quickly, and we are starting to see early signs of that.

On the ASX, WiseTech has fallen to $47 from its all time high of $130. Xero is down to $79 from its all time high of $196.

That is not automatically a bad thing. When stocks run that hard, mean reversion is normal. At some point, prices tend to drift back toward more average valuations, and that reset is a standard part of market cycles.

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So the question becomes: what can you actually do?

First, these kinds of drawdowns expose portfolio gaps. They reveal where you might be overexposed, where your allocation is skewed toward risk, and whether your portfolio still matches its objective. This is the moment to zoom out and make sure you understand your positioning, not just your individual picks.

Second, as much as prices can rise irrationally and stay elevated for longer than you expect, the same thing can happen on the way down. The difference is that declines often create opportunity for disciplined investors.

That’s why we think avoiding large positions immediately after a one week pullback is not always the right move. There are a few paths from here. We do not speculate on what the market will do next, but it is easy to see the setup: if further catalysts hit, downside can extend. If risk sentiment shifts, you can also get a sharp rebound. No one can confidently tell you which one will happen.

This is where knowing what you own, and why you own it, becomes critical.

What should you take away from this

Focus on companies with healthy balance sheets, enough cash to absorb volatility, and business models that can keep operating through a tougher tape. And be careful with stocks priced aggressively for future growth, because when expectations shift, the unwind can be fast, as we have seen with the ASX’s former “stellar” names.
If you like a company, believe it can execute over the long term, and the stock has had a sharp reversal, you can consider strategies like dollar cost averaging. That simply means building a position in stages, adding incrementally as the price falls, instead of trying to pick the exact bottom.

When market volatility rises, prices can overshoot on the downside. The VIX (the market’s volatility index) tends to spike when uncertainty increases, and that can pressure even high quality companies in the short term. If more negative catalysts emerge, prices can push lower before the market finds its footing.

The core lesson for investors is simple: know what you own, and why you own it.