The FTSE 100 reversed an early rally to close marginally lower on Tuesday, weighed down by mounting concerns over technology valuations and AI investment returns.
The index ended down 5.95 points, or 0.1%, at 10,650.33, having earlier traded as high as 10,762.01 during the morning session.
Dan Coatsworth, head of markets at AJ Bell (AJB.L), said the mood in markets was shifting as investors grew more cautious about the pace of AI spending.
“There are growing fears that companies are investing so much money into AI without a clear idea of the timing or scale of financial payback,” Coatsworth said.
European technology stocks came under heavy pressure after a significant sell-off in Asian semiconductor shares, with SK Hynix falling 10% and Samsung Electronics declining sharply.
The weakness followed reports of advances in memory-chip technology by China’s ChangXin Memory Technologies, raising fresh concerns about the competitive position of established chip manufacturers.
XTB analyst Kathleen Brooks noted that remarks from Broadcom’s chief executive also contributed to the broad sell-off across semiconductor stocks.
“The CEO of Broadcom, a major chip producer and semiconductor design house, said that trading action is becoming speculative, hinting that the AI trade is a bubble,” Brooks said.
Broadcom’s chief executive Hock Tan reportedly compared investing in AI to a casino, stating that investors have “very extreme” expectations and do not fully understand what they are investing in.
Coatsworth warned that many investors have overlooked the cyclical nature of the semiconductor industry, which could leave portfolios dangerously exposed if a tech-led correction occurs.
“Many people think demand will stay strong forever, and they run the risk of being caught out if they are heavily exposed to semiconductor stocks in their portfolio and there is a tech-led market correction,” Coatsworth said.
ASML fell 4.2% ahead of its third-quarter results on Wednesday, while Micron Technology dropped a further 5.1% on Wall Street, deepening losses across the sector.
David Morrison, senior market analyst at FCA, suggested the semiconductor weakness could prompt a broader rotation into sectors that have underperformed in 2026.
“Maybe it’s time for some rotation,” Morrison said. “If so, let’s hope it’s for all the ‘right’ reasons.”
US bank earnings provided some relief, with Goldman Sachs rising 1.3% and JP Morgan Chase gaining 1.0%, though Citigroup slipped 1.7% after reporting its own quarterly results.
JP Morgan’s Chief Financial Officer Jeremy Barnum struck an upbeat tone, saying “there’s a lot of business that wants to get done and needs to get done,” despite investment banking conditions easing slightly.
Brooks said bank earnings broadly painted a positive picture of the American economy, which appeared to be navigating higher interest rates and elevated bond yields with relative stability.
The yield on the US 10-year Treasury stood at 5.22% on Tuesday, narrowing from 5.28% on Friday, while the 30-year yield eased to 5.56% from 5.62%.
On the FTSE 100, London Stock Exchange Group fell 4.7% after confirming it is in talks to acquire financial data firm Octus for 3.5 billion dollars from private equity firm Permira, though no final agreement has been reached.
NatWest rose 2.1% after Barclays Capital upgraded its rating to “overweight,” with analyst Aman Rakkar citing earnings upside potential from higher interest rates, continued growth, and the acquisition of Evelyn Partners.
Melrose Industries climbed 3.5% after US authorities began winding up their investigation into its Garden Grove facility in California, operated by GKN Aerospace Transparency Systems, following a major safety incident in May.
YouGov jumped 14% after reporting revenue rose 2.0% to £396.6 million for the 12 months ended July 31, with the company expressing confidence in meeting market expectations for future growth.
Michael Page dropped 0.9% as chief executive Nicholas Kirk cautioned that “there remains a significant degree of uncertainty,” even as gross profit rose 1.4% to £190.5 million in the third quarter.
Entain rose 4.7% after its BetMGM joint venture reiterated full-year guidance following a strong third quarter, remaining on track to deliver net revenue of between 2.9 billion and 3.1 billion dollars.