The unstoppable upward trend of artificial intelligence stocks has been broken recently by a pause, which the investors are not quite used to. Actually, it was a kind of a pause that caused portfolios to double-check and analysts to get Valuation models instead of celebrating.
The Global X Artificial Intelligence and Technology ETF has come down more than 5% since the beginning of November. This is a reminder for the market that big tech names have to cool down at some point. Now, the question is whether January could flip the switch back to rally mode or not.
Mainstream AI Stocks Got Stuck
The decline in AI stocks is not linked to weakening technology relevance or imperfect demand conditions. The dip is just a reflection of old market anxieties, which are huge valuations, bubble talks, and worries about the large amount of capital that is being invested in the construction of AI infrastructure.
For instance, Nvidia and Palantir, two of the most recent 52-week-high companies, are currently experiencing falling stock prices, as the investors are reviewing how much optimism is already anticipated.
In fact, the debt levels that are related to data center expansions that are backed with an argument that the cloud providers are contributing a considerable sum to enhance the computing power, has led to a debate.
On the other hand, the sell-off seems to be more like a valuation reset than a structural problem, specifically since the AI technology just keeps on being adopted by more and more industries at a fast rate.
Valuations Looks Good
It is ironic that the sell-off that scared off some investors has now made the AI sector somehow more appealing. As, Nvidia now has a forward P/E ratio of about 24, which is significantly lower than the Nasdaq-100’s average ratio of about 32.
In fact, this is surprising for a company that is anticipated to earn approximately 60% more next year, and the figure may go higher if spending on AI infrastructure continues to speed up.
As per Goldman Sachs, the hyperscalers will invest $527 billion, 34% more than projected for 2025, in data center infrastructure by 2026. What is even more interesting is that this estimate has been revised again and again, which is an indication of how fast AI workloads are converting into economic value and not just remaining to be unfulfilled promises.
Artificial Intelligence Is Showing Its Productivity
The ongoing rise in spending forecasts is due to one reason, which is that AI is producing tangible results. Palantir’s AI platform is now like an example of bringing in the revolutionary shift between companies embracing AI and those who believe in its potential one day.
The users now report tasks in minutes that used to take them weeks to complete, and even the most dull procedures that would drag on for days are now being done almost instantly. IDC predicts that every dollar spent on AI is likely to result in the creation of nearly five dollars of economic value, which is a multiplier that no business or investor can afford to overlook.
“every new dollar spent on AI solutions and services by adopters is expected to generate an additional $4.9 in the global economy”.
This is the case with Palantir. The company is experiencing an evident payoff in customer numbers, which increased by 45% annually in Q3 2025. Meanwhile, its contract wins have increased much more than the reported revenue.
This difference indicates that the demand is greater than the company’s capability to deliver, which is ultimately creating a favorable environment for rushed growth when the implementation finally catches up.
Nvidia’s Chips in Full Power
Compute is the final destination of all AI roads and Nvidia is still in the middle of the compute ecosystem. During the November earnings call of the company, the Chief Financial Officer, Colette Kress, expressed that the need for AI infrastructure has not only matched, but has also gone beyond the expectations with multiple GPUs in the data centers operating at full capacity.
From training extremely large models to making predictions based on inference, customers have not yet gone away and they still line up to get Nvidia chips.
Nvidia believes that, by the end of the decade, global spending on AI infrastructure could see a compound annual growth rate of 40%, which will eventually reach $3 trillion to $4 trillion by the year 2030.
This kind of forecast might be one reason that earnings estimates for Nvidia are constantly rising higher, even though there are some instabilities in the share price in the short term.
Will January be a Turning Point?
January can be a turning point because some data facts are going to be presented soon. Reports of earnings from companies that are key AI infrastructure players such as Lam Research and ASML, are due on January 28, and these two firms are regarded as an indication of health of the entire AI supply chain.
Recently, Lam Research announced a rise of 27.5% in its revenue and the management highlighted the AI-related growth as a multi-billion dollar opportunity in the future years.
On the other hand, ASML caught the market by surprise with its stronger than expected bookings, which emphasized the ongoing demand for the advanced chip manufacturing equipment.
If both companies present good forecasts, it may again restore the confidence of the whole AI industry.
Bottom Line
The last three years have seen AI stocks gaining remarkable heights and even reshaping the market, where Nvidia and Palantir have been among the winners. In the meantime, volatility is definitely going to be a part of the journey.
However, both BlackRock and Wedbush’s Dan Ives are optimistic that AI will be the central driver of the market going into 2026.
If the January earnings report profit, it will indicate that the demand for infrastructure is still high and there is a real increase in productivity. This means that then the sell-off may be interpreted not as a warning sign, but as a reset before the next upward move.
Thus, for investors, the beginning of the year is less about chasing the hype and more about getting the right position moving ahead.
