Feb. 24, 2026 – The recent selloff in technology stocks has sparked fears that the artificial intelligence boom may be collapsing. Analysts, however, suggest a more accurate analogy may be deflation rather than a bubble burst — particularly regarding valuations.

AI’s rapid advances have investors worried that it could replace large swaths of tech and other industries, triggering steep declines in Software-as-a-Service companies, logistics providers, legal and business information firms, and even real estate-related tech plays.

“AI is repricing the future,” said Jordi Visser of 22V Research, noting that fast-moving technological change makes earnings forecasts increasingly unreliable. Traditional metrics like forward price-to-earnings ratios are struggling to keep pace as entrepreneurs shift toward bespoke AI solutions rather than conventional enterprise licenses.

The trend has also exposed vulnerabilities in the U.S. tech sector. High development costs for frontier AI models contrast sharply with cheaper Chinese open-source alternatives, which Visser said already capture roughly 47% of the global AI market at 80–90% lower cost. “Even companies winning the inference race face compressed margins,” he added, highlighting Anthropic and Oracle as examples.

Investors are increasingly concerned about heavy AI capital expenditures. Once known for asset-light business models, major tech firms are now committing billions to compute infrastructure in a sector where cheaper alternatives are rapidly emerging.

The strain is visible in market data. The iShares Expanded Tech-Software Sector ETF has seen quarterly losses rivaling those of the dot-com crash and the Great Financial Crisis. Experts warn that the pressure may continue, describing the situation as a “deflationary spiral in intelligence driven by hyper-competition.”

For investors, the message is clear: AI is reshaping expectations — but its rapid evolution is weighing on valuations and forcing a recalibration of risk in the sector.