The US stock market has seen $1 trillion wiped off in four days as a sell-off in tech companies deepened on Wednesday.

The S&P 500 fell for the fourth consecutive day on Wednesday amid fears that an AI-powered stock market rally could be about to collapse.

The tech-heavy Nasdaq fell by as much as 1.8pc in early trading on Wednesday, bringing the index down by as much 7pc so far this week in its worst sell-off since April.

The Nasdaq has since pared back some of its losses but was still down by nearly 1pc by Wednesday afternoon.

The drop-off has been fuelled by concerns that AI companies are overvalued, with some claiming they have little to show for the billions of pounds of investment that have been ploughed into companies such as OpenAI.

Shares in Nvidia, the world’s largest company with a $4 trillion valuation, fell by 3.3pc in early trading on Wednesday, before recovering slightly.

The technology giant, which makes the chips that power vast AI data centres, was down 4.9pc since Monday.

Shares in Palantir, the US data business and defence contractor, also sank by as much as 6pc on Wednesday before partially recovering. The value of its stock has tumbled by a fifth in six days.

Shares in American chipmaker Intel plunged by more than 7pc while UK chipmaker Arm’s share price was down by 3.6pc on Wednesday.

It comes after a report from researchers at MIT suggested that 95pc of corporate AI projects are so far generating “zero return” for businesses.

Danni Hewson, head of financial analysis at AJ Bell, said: “The MIT report into the AI boom has soured sentiment.”

OpenAI chief executive Sam Altman also made public remarks last week that some investors had become “overexcited” about AI.

However, analysts cautioned against racing to sell tech stocks.

Ulrike Hoffmann-Burchardi, Chief Investment Officer Americas at UBS, said in a client note: “While some near-term tech volatility is not surprising given the run-up in valuations, we advise investors against becoming overly defensive for several reasons.”

Tech earnings growth has been strong and companies are becoming better at monetising AI adoption, Ms Hoffmann-Burchardi said

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US stocks fell on Wednesday, though by the end of the day the drops were not nearly as stark as during early trading.

The S&P 500 closed down 0.26pc, at 6,394.97 while the Nasdaq Composite fell by 0.68pc to 21,170.19.

Tech stocks Palantir, Nvidia and Intel fell by 1.1pc, 0.14pc and 8.86pc respectively.

US tech investors are also worried about Trump administration interference in the private sector.

US Commerce Secretary Howard Lutnick said on Tuesday that he is looking at taking a stake in chip firms including Intel in exchange for grants to spur factory building in the US.

Intel’s share price plunged by 8.86pc on Wednesday.

Reuters also reported on Tuesday that Mr Lutnick is planning to expand this plan to other companies.

Shares in non-US technology companies have also slumped.

The value of stocks in Taiwan Semiconductor Manufacturing Company (TSMC) fell by 4.2pc on Wednesday.

German semiconductor manufacturer Infineon fell by 1.6pc while software company SAP dropped by 1.3pc.

ASML, the Dutch multinational that makes the machines needed to make chips, also dipped by 0.64pc, while European chip design company STMicroelectronics was down by 0.85pc.

Tech investors are watching closely for signals of a Federal Reserve interest rate cut.

Phil Blancato, chief executive officer of Ladenburg Thalmann Asset Management, told Reuters: “It’s much more about profit-taking and temporary rebalance here.

“If you get a Federal Reserve cut or a mention of it on Friday, this will reverse pretty quickly, but this is a lot to do with names pushed up to really lofty levels.”

Fed Chair Jay Powell will deliver a key speech at the Jackson Hole symposium on Friday, which will be closely watched for clues on the likelihood of a rate cut at the Federal Open Market Committee (FOMC)’s next decision in September.

August is typically a more volatile month for stock markets. Investors and traders often go on holiday before the end of the summer, meaning it is a time when there are often much lower trading volumes.

August has historically been one of the worst-performing months for the S&P 500

Firms are reducing their tech investments. Nancy Tengler, chief executive and chief investment officer of Laffer Tengler Investments told Bloomberg:

“We’ve been trimming our tech holdings some; we’ve trimmed Microsoft, Oracle, Broadcom, Nvidia, and have added to housing names in the past few months.

“But even though there’s been something of a pivot, we absolutely do not think the tech trade is over.”

There are signs the tech sell-off has begun to ease, with the Nasdaq Composite’s drop easing from 1.8pc to 1pc by Wednesday lunchtime in the US.

However, the tech-heavy index had still dropped by 2.2pc since the end of the day on Monday.

Palantir’s share price similarly erased some of its early losses on Wednesday but was still down by nearly 3pc.

The tech sell-off began on Tuesday after a report from Massachusetts Institute of Technology (MIT) researchers warned that the vast majority of AI investments were yielding “zero return” for businesses.

“Despite $30-40bn (£22-30bn) in enterprise investment into Gen[erative]AI, this report uncovers a surprising result in that 95pc of organisations are getting zero return,” MIT academics wrote.

MIT’s findings threaten to be the pin that pops the tech stock market bubble, which has added trillions of dollars to the value of US stocks.

Since the launch of ChatGPT in 2022, Silicon Valley has been evangelical that AI chatbots will transform the economy. Executives have spent billions on tools for their staff as a result and predicted massive cost-savings.

But the promised AI revolution has stalled, MIT’s report suggested.

After surveying 150 business leaders and 350 employees, MIT found that “just 5pc of integrated AI pilots are extracting millions in value, while the vast majority remain stuck with no measurable P&L [profit and loss] impact”.

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American stocks are “in the early days” for a bubble, according to the co-founder of Oaktree Capital Management.

Howard Marks, who is co-chairman of the distressed debt investment manager, told Bloomberg: “I’m certainly not ringing the alarm bells. The point is that things are expensive.”

Mr Marks said that some tech stocks are “quite highly valued” relative to history.

He added: “People get of the habit of thinking about market corrections … a reversion to the mean is very likely.”

Shares on Tokyo’s Nikkei index fell by 1.5pc today after a major sell-off at a Japanese technology giant that has invested billions in AI technology.

SoftBank, the Japanese investor that has backed businesses including OpenAI, fell by 7pc on reports that it intended to invest billions of dollars in US chip giant Intel.

The Japanese business is also one of the biggest investors in OpenAI, having pledged to inject tens of billions of dollars into the Silicon Valley business.

The latest investment is expected to value OpenAI at as much as $500bn, despite Sam Altman, its chief executive, warning over the weekend that investors stood to lose a “phenomenal” amount of money from bad bets on the AI boom.

Shares in some of the world’s biggest technology companies plunged on Wednesday as market jitters about over-stretched technology stocks gathered pace.

Nvidia, the US chip giant that supplies AI data centres, dropped by 1.6pc in early trading. The $4 trillion technology giant is down more than 4pc since Monday.

Elsewhere, shares in Palantir were down as much as 6pc in earler trading on Wednesday. Shares in Arm, the UK chip designer, were down more than 4pc.

Among the so-called “Magnificent Seven” tech stocks, Meta had fallen by 1.4pc on reports it was again rejigging its AI Superintelligence team.

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