U.S. stocks fell on Tuesday as concerns over lofty valuations hit investor confidence despite a steady stream of solid earnings. Wall Street is increasingly questioning whether corporate performance can justify the market’s sky-high multiples after months of AI-fueled optimism.
The Nasdaq Composite (IXIC) led losses, falling roughly 1.6%, while the S&P 500 (GSPC) slipped 1.1% and the Dow Jones Industrial Average (DJI) declined 0.5%. Tech names were the hardest hit as investors rotated out of high-growth favorites into more defensive positions.
Market Movers:
- Hertz (HTZ) +31% – Shares surged after the rental-car giant returned to profitability for the first time in eight quarters. The company posted EPS of $0.12, topping expectations, and reported improved fleet utilization of 84%, the highest in seven years. Hertz’s cost discipline and fleet refresh fueled optimism about its turnaround.
- Metsera (MTSR) +12% – The drug developer jumped after receiving sweetened takeover proposals from both Novo Nordisk and Pfizer. Novo’s bid, worth up to $86 per share, remains the favorite, while Pfizer has two days to counter. Investors are betting on a high-stakes bidding war that could drive further gains.
- Upwork (UPWK) +9% – The freelance platform rose on strong quarterly results that beat earnings and revenue estimates. Upwork posted record adjusted EBITDA and raised guidance for both Q4 and the full year, signaling robust demand for flexible digital work services.
- Uber (UBER) -8% – Shares tumbled despite the company reporting record quarterly revenue and profit. While gross bookings rose sharply, guidance for Q4 EBITDA came in below expectations, sparking fears that growth could slow into 2026 even as the company invests heavily in AI and automation.
- Palantir (PLTR) -7% – The software company slid as investors balked at its soaring valuation, overshadowing another blockbuster quarter. Palantir’s revenue jumped 63% year over year, with triple-digit growth in U.S. commercial contracts, but analysts warned its stock remains priced for perfection.
Tech’s Reckoning With Reality
After a year of relentless gains, the market’s most crowded trades are starting to show cracks. The “Magnificent Seven” have powered nearly all of 2025’s rally, but investors are now reassessing whether the growth baked into their valuations is sustainable. Analysts warn that high interest rates, coupled with slowing margin expansion, could trigger a broader correction if earnings momentum stalls.
Palantir and Uber’s post-earnings sell-offs reflect that tension — solid performance is no longer enough to justify record-high multiples. Even Nvidia, still up more than 50% year-to-date, saw pressure after hedge fund manager Michael Burry revealed bearish positions against the chipmaker. The moves underscore a market increasingly sensitive to any sign of overvaluation or decelerating demand.
Macro Headwinds Intensify
Adding to the unease, Washington’s record-tying 35-day government shutdown continues to delay critical economic data, including the October jobs report. That data vacuum has left investors flying blind as the Federal Reserve weighs its next moves. Without fresh employment or inflation metrics, traders are relying on private surveys, including this week’s ISM manufacturing report, which showed contraction for the eighth straight month.
Energy prices also dipped as Russian crude shipments declined under new U.S. sanctions, while crypto assets slumped alongside risk sentiment. Bitcoin fell 5% to just above $101,000, extending its retreat from October’s record highs as liquidity tightened across speculative markets.
A Growing Debate on AI Spending
Investor focus is also shifting to how much Big Tech’s massive AI spending can realistically return. Companies like Meta and Amazon continue to pour tens of billions into infrastructure, even as profit margins narrow from depreciation and rising costs. While optimism around AI remains high, Wall Street appears to be demanding clearer evidence of near-term payback.
Analysts say the market may be entering a “prove it” phase — one where enthusiasm alone won’t drive stocks higher. Strong fundamentals, efficient capital deployment, and measurable returns on AI investments will likely determine who leads the next leg of growth.
Looking Ahead
All eyes are now on AMD’s earnings after the bell, which could offer fresh insight into the strength of the AI hardware cycle. Later this week, investors will parse comments from Federal Reserve officials for any shift in tone amid the ongoing data blackout. While bullish sentiment around innovation remains intact, the day’s declines highlight a growing realization: after an extraordinary rally, markets may finally be confronting the limits of their own optimism.