The global artificial intelligence (AI) rally, which has fueled stock markets to record highs over the past year, is beginning to show signs of strain. Analysts have grown increasingly cautious about sky-high valuations and the potential for a pullback. Recent comments from the CEOs of Morgan Stanley and Goldman Sachs suggest that equity markets may be heading toward a correction, highlighting concerns about elevated technology stock prices.
The initial signs of stress appeared with a sharp sell-off in global tech stocks earlier this week, led by Nvidia and Palantir Technologies, unsettling investors worldwide. The S&P 500 and Nasdaq Composite experienced their largest one-day drops in nearly a month. Nvidia, which recently became the world’s most valuable company by surpassing a $5 trillion market cap, has slipped around five percent over the last five days.
Impact of the AI Sell-Off on Indian Equities
Indian AI-linked stocks have also experienced turbulence amid the global tech sell-off. Netweb Technologies, a leading manufacturer of high-performance computing systems for AI workloads, data centers, and defense applications, had seen one of the sharpest declines during the correction phase, falling about 13 percent at one point. The company had earlier been among the biggest AI gainers, with its shares surging in the first half of 2025.
Anant Raj, a company involved in data center operations and development, similarly faced a sharp correction after gaining in the last six months on expectations of benefiting from India’s data infrastructure boom. E2E Networks, a cloud infrastructure provider supporting AI and machine-learning workloads, also came under pressure. Techno Electric, a provider of power infrastructure solutions for data centers, also witnessed a brief correction phase, with its shares declining around five percent at one point.
Other notable declines included Orient Technologies, which supplies enterprise IT and automation solutions, falling ten percent, and Affle (India), a mobile advertising and digital analytics firm leveraging AI for targeted marketing, dropping nine percent.
“While the sentiment remains cautious, the effects of the AI-driven sell-off have only acted as a drag on indices and speciality tech-related sectors. Importantly, the Indian equity market’s minimal exposure to AI has prevented a widespread market crash, showcasing its resilience in the face of volatility,” said Vipul Bhowar, Senior Director and Head of Equities at Waterfield Advisors.
Reasons Behind the Indian AI Stock Correction
Valuation concerns have been at the heart of the recent pullback. Many Indian AI proxy companies are trading at elevated multiples following their rapid run-up. Netweb Technologies currently trades at a price-to-earnings ratio of 138x, E2E Networks at 177x, and Anant Raj at 49x, significantly above the industry median.
Analysts attribute much of the decline to valuation fatigue after a spectacular rally. Over the past year, investors poured money into anything remotely connected to AI, including cloud computing, chips, data storage, and automation, pushing stock prices well ahead of their fundamentals.
Tapse from Mehta Equities noted that while investors are attracted to these “proxy plays” for their long-term AI growth potential, any uncertainty about timelines or competition can trigger sell-offs. “When investors buy into AI ecosystem stocks, they are not investing in current earnings but in future potential. The sell-off is a reality check that growth may take longer to materialize, margins could compress, and competition in AI-linked infrastructure is intensifying,” he said.
Vishnu Kant Upadhyay, AVP-Research at Master Capital Services, described the correction as more of a “sentiment reset” than a structural reversal. “Valuations had moved well ahead of fundamentals, so a short-term correction looks more like a sentiment reset than a structural reversal. India’s technology and innovation-driven themes are still in their early stages,” he said.
Upadhyay added that the trend could lead to sectoral rotation, with investors moving from expensive new-age themes to more reasonably priced areas such as financials, capital goods, and manufacturing. “While data center and infrastructure enablers like Netweb and Anant Raj may stay volatile in the near term, they still present long-term opportunities once valuations stabilize,” he noted.
Conclusion
The recent correction in AI-linked stocks is mostly a short-term market adjustment due to high valuations. India’s AI and technology sectors continue to grow, and long-term opportunities remain strong. Investors should stay focused on the potential of these companies rather than short-term market swings.
-Manan Gangwar
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