An NVIDIA logo and a computer motherboard appear in this illustration taken August 25, 2025. REUTERS/Dado Ruvic/Illustration

By Lewis Krauskopf and Dhara Ranasinghe

NEW YORK/LONDON (Reuters) -Nvidia's strong earnings report offered only a brief reprieve for stocks on Thursday, as doubts about the return on relentless artificial intelligence investment and lofty valuations on Wall Street had global markets on edge.

Initial relief across world stocks from surprisingly strong results on Wednesday from AI darling Nvidia turned sour.

Investors refocused on the risks that have pulled major U.S. equity indexes off the record highs hit late last month. The Nasdaq Composite and S&P 500 had their biggest intraday swings since the extreme volatility set off by President Donald Trump's "Liberation Day" tariff announcement in April.

"This is a coordinated risk-off trade — tech stocks, crypto, etc on worries about valuations and leverage," said Mark Hackett, chief market strategist at Nationwide. "The fact that it is an intraday decline rather than a drop at the open suggests exhaustion."

Nvidia's upbeat results did not dispel concern around a fall back to earth for highly-valued tech stocks, amid lingering concerns about whether AI spending will pay off.

Nvidia's results "are encouraging and support the AI story," said Angelo Kourkafas, senior global investment strategist at Edward Jones. "But ... I think there's broad skepticism over the next one-to-three years whether AI is going to be able to deliver on the return side."

Global stocks have now dropped over 3% this month in part driven by concerns that a rally in tech shares has gone too far, too fast.

"The concerns around tech will persist and each quarter we are likely to come across the same concerns as markets question the concentration," said Seema Shah, chief global strategist at Principal Global Investors in London.

"That story won’t go away."

Shah said that while she was overweight U.S. stocks, she was also wary of concentration risks and this was one reason why she was looking at European shares.

AI COMPANY RESULTS AS IMPORTANT AS DATA PRINTS

Investors and analysts say that as AI emerges as a so-called mega-trend, market sentiment hangs on earnings results from chipmaker Nvidia, a bellwether for the AI build-out, and other technology companies. They are as key to shaping views on the economic outlook as monthly economic releases.

Nvidia's shares ended down over 3% after jumping in early trade. The S&P 500 shed 1.6% while the Nasdaq slumped over 2%, after both had climbed sharply earlier. MSCI's index of global shares was off 0.9%.

Investors also grappled with the delayed release of September payrolls data that solidified the belief in some market participants that the Federal Reserve would not lower interest rates for a third straight meeting in December.

Morgan Stanley on Thursday said it scrapped its forecast that the Fed would cut interest rates by a quarter-point at its December meeting after the Labor Department released data showing a greater-than-expected 119,000 non-farm payrolls increase in September. The report was more than a month late due to the government shutdown.

"It's a sense that the Fed is still driving in the fog and we're not going to get any support from monetary policy in the short term," said Art Hogan, chief market strategist at B. Riley Wealth. "I think that's been a larger influence (in the market today) than the questioning about AI valuations."

"The positive here is the most speculative fringes of the market are getting a much-needed sell-off."

AI, TECH STOCK CONCERNS REMAIN

Thursday's action showed that investors need to brace for a bumpy ride.

"Investors do need to worry about bubble risks," Mark Haefele, chief investment officer at UBS Global Wealth Management, told reporters on a call about the 2026 outlook on Thursday.

The so-called "Magnificent Seven" - including Nvidia and Meta - have seen their share prices soar over the past several years, fueling fears about the scale of market exposure to just a few names.

Technology firms are among the stock market's big decliners in recent days, although they are still well up on the year.

The S&P 500 tech sector's forward price/earnings ratio - a measure of how much a company is worth compared to future earnings - was recently about 30 times, well above its 10-year average of 22.2.

The AI stocks frenzy has drawn comparisons with the 1990s dotcom boom and bust, while concerns were rising about debt taken on by tech firms.

Nvidia produced $60 billion in free cash flow over the past 12 months, David Trainer, CEO of investment research firm New Constructs, said in a note. To justify its current stock price, it would need to produce $2.1 trillion in annual cash flows within 10 years, he said.

On Wednesday, speaking before the Nvidia results, Amundi, Europe's biggest asset manager, said it was underweight megacap stocks.

While it had not sold down the stocks in most portfolios, it has been hedging with derivatives that give it the option to sell them instead, Amundi's CIO, Vincent Mortier, said.

(Reporting by Lewis Krauskopf and Dhara Ranasinghe; additional reporting by Chibuike Oguh, Noel Randewich, Yoruk Bahceli, Caroline Valetkevitch; Editing by Alden Bentley, Elisa Martinuzzi, Ros Russell, Diane Craft and David Gregorio)