Morgan Stanley Calls AI Market Selloff a Priority Reset as Nasdaq 100 Enters Correction

The Nasdaq 100 slid 1.4% on Monday, pushing it into correction territory, as investors continued to rotate out of AI-related stocks and demand proof of returns on the billions spent building artificial intelligence infrastructure. The broader move follows the Nasdaq's worst single-day percentage drop in nearly five months on the preceding Friday, with the index down roughly 5.3% in October overall. The S&P 500 closed down 0.51% Monday while the Dow Jones Industrial Average bucked the trend, rising 0.41%.

Morgan Stanley deputy CIO Jitania Kandhari framed the selloff as a structural shift rather than a panic, telling Bloomberg that investor priorities have moved from growth at any cost to profitability. "I think the markets are now saying not AI at any price, but AI with profit," Kandhari said. The bank's assessment echoes a broader Wall Street debate: CEOs and money managers remain split on whether AI's risks outweigh its rewards, as companies struggle to demonstrate monetization of their own AI tools.

Apple emerged as a relative safe haven in the selloff, with the Wall Street Journal noting that the iPhone maker has not positioned itself as a pure-play AI bet the way other Magnificent Seven members have. However, Apple's own quarterly guidance disappointed investors, sending shares lower even as AMD and other AI-adjacent names staged a partial comeback. Microsoft, by contrast, was rewarded by Wall Street for signaling more disciplined AI capital spending, with analysts drawing a sharp distinction between hyperscalers funding AI expansion from operating cash flow and those relying on debt or equity issuance.

The stress is not confined to equities. Deutsche Welle reported that US tech giants issuing billions in AI-related bonds are now competing directly with cash-strapped European governments in bond markets, putting upward pressure on borrowing costs in France, Germany and Italy. Palantir's head of UK and Europe Louis Mosley told Bloomberg Tech that AI adoption in Europe is lagging the United States materially, with Palantir's own revenue growth described as "the purest proxy in public markets for the rate of AI adoption in an economy." While US AI stocks stumbled, China technology shares moved higher, a divergence that analysts attributed to distinct valuation dynamics and different investor bases after China's own AI stocks had already shed roughly $480 billion in market value over the prior four months.