Over recent weeks, the well-known Dutch proverb “Hoge bomen vangen veel wind”, which translates to “tall trees catch a lot of wind”, has felt apt. The financial press and investors have increasingly questioned the valuations of the largest US technology companies, given the Magnificent 7 stocks represent over a third of the S&P 500 index market capitalization. Despite strong earnings across the sector – supported by growing demand for AI chips and data-centre capacity – volatility has picked up recently as sentiment towards technology and AI has become stretched. This resulted in sharp declines for equity markets last week, although they have since rebounded.
Rather than taking these moves as signals of broader weakness in the US economy, they should be viewed as normal fluctuations that occur when valuations reach elevated levels. These gyrations are not signs of broad economic deceleration, as much of the stress appears linked to hedging and positioning rather than large-scale risk reduction. The volatility may also reflect a broader shift to a more valuation-aware, selective phase of the AI cycle, alongside healthy profit-taking as year-end approaches.
This week, we look at what has driven recent volatility and what it means for investors.
Technology companies are richly valued, but this is only part of the story. Circular deals – when a company invests in or lends to its own customers so they can continue making purchases – along with the rising use of levered ETFs, have raised concerns about the tech ecosystem. This has drawn parallels to the dot-com era.
Elsewhere, sharp moves in cryptocurrency markets have added to uncertainty. Bitcoin fell nearly 4% on 21 November before closing down 3.6% and is down more than 25% from its all-time high in October. These moves have led some to speculate about margin calls and forced selling, adding another layer of nervousness to an already skittish environment.
Mixed messaging from the Federal Reserve (Fed) has contributed to market swings. While the US government shutdown has ended, investors remain divided over whether the Fed will cut rates in December. Recent comments show broader support for cutting rates, which has supported the market in the run-up to the Thanksgiving holiday.
A great deal was riding on Nvidia’s earnings last week, and when the world’s largest company reported strong results on 19 November, Nvidia’s stock rose 5% initially, which faded to end the day down 3.2%. The reversal underscored how high expectations have become for a company flirting with a valuation of $5 trillion.
Meanwhile, database and cloud services giant Oracle – which had previously indicated a huge orderbook worth around $455 billion – also came under pressure, falling nearly 6% on 21 November. Its five-year credit default swaps (CDS) spreads widened to 1.2% from around 0.45% at the end of August, implying increased concern about future issuance to support its orderbook and potential for rating downgrades. While CDS are used to hedge against default risk, it appears that this move is more related to hedging activity and expectations of future debt issuance rather than immediate default concerns. Oracle is among the largest 20 companies in the S&P 500.
Google-owner Alphabet has also been in the spotlight. After several years of criticism that it was lagging in artificial intelligence, Google released Gemini 3, a new AI model that improves its capabilities in coding, email organisation, and document analysis.1 While competition from AI rivals, including ChatGPT and Perplexity, remains fierce, Alphabet’s deep infrastructure investment, early traction in AI-enabled search tools, and substantial ad-business cash flows position it well.2
Alphabet shares climbed nearly 5% after filings revealed Berkshire Hathaway acquired a near $5 billion stake in the Google-owner – one of the final major investments under Warren Buffett before he steps down as chief executive at the end of the year.3
Taken together, recent moves may indicate markets are becoming more selective around AI and high-growth tech. Investors appear increasingly focused on the sustainability of earnings, valuation, and long-term profitability rather than momentum alone.
This is not unhealthy. Profit-taking after substantial gains is a normal part of market functioning. Greater scrutiny and rationality help reduce the risk of exuberance.
While swings have captured headlines, it is important to view them in context. Volatility during periods of rapid technological change and shifting monetary policy is entirely normal. These moves can cause unease, but rarely alter the long-term case for staying invested. Periods like this reinforce the importance of discipline, diversification, patience, and selectivity. Focusing on long-term fundamentals rather than reacting to short-term volatility, remains the most reliable way to navigate uncertainty and build resilient portfolios.
[1] Google Unveils Gemini 3, With Improved Coding and Search Abilities - The New York Times
[2] Alphabet share boost after what may be Warren Buffett’s last deal
[3] Alphabet share boost after what may be Warren Buffett’s last deal
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