Global equities tumbled Tuesday as concerns of inflated valuations and an uncertain macro environment grips investors ahead of Nvidia earnings this week. The pan-European Stoxx 600 opened in negative territory on Tuesday with mining-linked stocks and banks leading Europe's losses. The Stoxx Europe 600 Technology Index shed 1.4%, following in the footsteps of U.S. stocks as fears of an artificial intelligence-fueled bubble persist. The three major U.S. indexes, Dow Jones Industrial Average, the S&P 500 and tech-heavy Nasdaq Composite, ended the previous trading session in the red. Stock futures fell again on Tuesday, setting up the market for its fourth consecutive day of losses. Nvidia, Palantir Technologies, Amazon and Microsoft were among those dipping in premarket trading. Asia-Pacific markets were also lower on Tuesday, led by declines in Japan and South Korean benchmark indexes. Mike Gallagher, director of research at Continuum Economics, said the market action implies equities could fall about 5% from recent highs — or "a bit more." He told CNBC's "Squawk Box Europe" that the sell-off is "natural profit taking" following a strong market run since April.
Stock Chart Icon Stock chart icon An interactive chart showing Europe's Stoxx 600 index
It all comes on the backdrop of AI bubble fears and the market holding tight for Nvidia's third-quarter earnings, which are due after Wednesday's close. Nvidia is seen an important bellwether for the AI industry as many of the largest players rely on its GPUs. The recent earnings seasons shows that the big hyperscalers are still getting lots of revenue coming through 2026-27, Gallagher said, adding that investors are watching Meta closely because without a server business it serves as an indicator of whether the next wave of AI applications can deliver revenue. "That suggests this is just a routine, healthy correction," he said. Tema ETF Chief Investment Officer Yuri Khodjamirian put the sell-off down to a "healthy dose of skepticism" as the market realized that the mega-deals announced over summer need to actually be funded somehow. He pointed to OpenAI's "massive announcements of commitments to spending on GPUs, power data centers," and said "the market is starting to realize that this is going to maybe be a slower process than they thought in the summer." "There is this kind of balancing going on in the market, and this is what you're seeing in some of these shares. Oracle 's share price is back to where it was pre-the OpenAI announcement, so we think it's reasonably healthy. The dynamics continue, these data center build outs, whether you listen to Microsoft , Meta, Nvidia, etc, they're all going in the direction of upwards. Nothing's really stopping, so what we're seeing is just a healthy correction, in a way, in the marketplace," Khodjamirian told CNBC's Silvia Amaro. Some major tech companies such as Alphabet and Meta have turned to debt issuances to fund their sprawling AI ambitions. Amazon, for example, undertook its first bond sale in three years according to a Bloomberg report.
"We're seeing more evidence of vendor financing, of tapping the credit markets, but I think we're still in the relatively early stages," David Groman, global equity strategist at Citi, told CNBC's "Squawk Box Europe." The bond market must adjust and react, "spreads need to get a bit wider, dramatically wider," added Gallagher. "We're not seeing a big blowout phase in corporate bond spreads," he added. Citi has a "bear market checklist" for whether the conditions needed for a long, sustained sell off in global equities are in place, Groman said. It looks at 18 factors including valuation, sentiment and positioning over a three-year rolling basis. "What it says to us is that maybe eight out of 18 things are flashing red. In some ways, it looks like the past, in 2000 on a valuation basis, but on many other factors, things like fund flows into equities, M&A activity, IPO activity, the real signs of froth are not necessarily there," he added, stating that it's still "time to buy the dip" as equity inflows are "still pretty subdued on a longer run horizon." However, Gallagher noted that there is an element of de-risking amid an uncertain macro environment. Investors are uncertain about a previously-expected Fed rate cut in December, he said, adding that the central bank will "probably" now pause in the first quarter of 2026.