SINGAPORE/NEW YORK — Sharp falls in technology stock prices are cause for caution but not panic yet, said brokers and investors who have been riding a runaway market to record highs and some stretched valuations.

Selling extended into a second day on Wednesday to leave bourses in Seoul and Tokyo around 5% beneath peaks reached on Tuesday morning.

But both markets recovered towards the close while European stocks rose a bit and even Nasdaq <.IXIC> was up 0.4% after a 2% fall for the index on Tuesday.

Stocks hardest hit during the selloff have been the biggest winners of a rally that has vaulted chipmaker Nvidia from a niche player to the most valuable company on earth.

“The selloff appears to be largely positioning-driven, with recent outperforming names taking the worst of the move,” said Jon Withaar, senior portfolio manager at Pictet Asset Management in Singapore.

There was no obvious trigger for the pullback, but it began with an unexpectedly negative reaction to strong financial results at Silicon Valley data and artificial intelligence firm Palantir Technologies.

Shares in the market darling finished down nearly 8% on Tuesday, and fell a further 3.5% on Wednesday.

“So people are up to their noses in these AI stocks,” said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC. “But how much further can they go? How much more can they buy? And my belief is that what we’re going to see is a breather…and the breather could come with a rotation.”

On Tuesday, Nvidia shares fell nearly 4% on Wall Street to trade down about 7% from last month’s peak while suppliers, competitors and firms up and down the AI supply chain came in for a beating in Asia on Wednesday.

“It’s fairly blanket selling in the risk-leverage part of the market, which to us looks like short-term profit-taking,” said Angus McGeoch, Barrenjoey’s head of equities distribution for Asia in Hong Kong.

He said fund managers with an eye on their 2025 results would be quick to duck out of downdrafts at this time of year, but not yet looking for a wholesale exit.

“Obviously (they) don’t want to give up a lot, given the year’s been kind…, but if the market looks like it wants to go again, then I don’t think it would take much to get people back involved.”

‘A Wobble’

Markets have for months marched past worries over elevated interest rates, stubborn inflation, trade turmoil and a patchy global economy leading to questions about whether the artificial intelligence boom is a bubble waiting to burst.

To be sure, Tuesday’s 2% drop in the Nasdaq followed a rise of more than 50% from April lows.

Vishal Vivek, equity trading strategist at Citi, said the decline did not indicate AI stocks were falling out of favour.

“A little bit of risk coming off is not going to take the sheen off what’s been a pretty remarkable year, in fact, a pretty remarkable three-year stretch,” he said.

“If anything, there’s a reasonable chance that you’re going to pause your buying maybe, but you’re not going to necessarily sell your big positions into year-end because you’re worried about one or two companies that have underperformed.”

In U.S. markets, third-quarter earnings have been resilient, with more than 83% of the S&P 500 companies that reported as of Saturday beating analyst expectations, according to LSEG data.

Quarterly reports from the biggest technology firms also showed surging AI investments, raising doubts about the circular nature of the spending and earnings potential.

“It’s not like any one of their earnings reports were really that bad,” said Seth Hickle, portfolio manager at Mindset Wealth Management. “It’s just that it didn’t fire on all cylinders. And that’s what investors are demanding in this environment.”

Wall Street chiefs Ted Pick of Morgan Stanley and David Solomon of Goldman Sachs gave voice to some of the unease in markets and raised the prospect of a pullback at an investment summit in Hong Kong.

Matthew Haupt, lead portfolio manager at Wilson Asset Management in Sydney, viewed the downturn as investors taking money off the table ahead of Wednesday’s U.S. Supreme Court hearing on the legality of tariffs.

“I’ve been buying today,” he said. “I hope I’m right.”

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(Reporting by Ankur Banerjee and Laura Matthews, additional reporting by Tom Westbrook and Vidya Ranganathan; writing by Tom Westbrook; editing by Alexandra Hudson and Mark Heinrich)