đ Weekly Market Update: The AI Reckoning Strikes Back
AI just had its first real hangover of 2025. After months of powering markets higher, the megaâtrend finally ran into an old enemy: profit margins and valuation math.â
This weekâs story is about AI hype meeting spreadsheet reality, a Fed thatâs still in easing mode, and a market quietly rotating away from crowded tech trades.â
đ What Is Happening?
The headline this week: AI bellwether Broadcom sparked a sectorâwide rethink. The company posted strong quarterly results on 12 December, beating both revenue and earnings expectations, yet its shares tumbled about 11% in a single session.â
Investors fixated on margin pressure tied to lowerâmargin custom AI chips and big infrastructure projects, even as management highlighted a roughly $73 billion AI order backlog over the next 18 months, including major deals with Anthropic.â
The sellâoff quickly spread: Nvidia, AMD and other AIâlinked names dropped alongside Broadcom, dragging the Nasdaq lower and reinforcing fears that parts of the AI trade had become a bubble.â
At the index level, tech and AIâheavy benchmarks underperformed while value and Dowâtype names held up better. Weekly and midâmonth commentaries show the Nasdaq lagging, the S&P 500 under mild pressure, and the Dow comparatively resilient, reflecting a rotation away from crowded growth trades.â
On the macro side, the Federal Reserve delivered its third straight 25 bps rate cut of 2025, taking the federal funds rate down to 3.50%â3.75%, the lowest since 2022.â
The Fed flagged cooling labor markets and stillâelevated but moderating inflation, keeping a cautious tone rather than declaring victory.â
Shortâterm borrowing costs are falling, but markets remain volatile as investors reassess how much growth AI can actually deliver versus whatâs already priced in.â
đ§ Why It Matters
This correction is less about AI ânot workingâ and more about AI stocks finally being treated like real businesses. For much of 2025, exposure to AI alone justified rich multiples; this week showed that investors now care about margins, capital intensity, and payback periods.â
Broadcomâs results proved that revenue growth and big AI backlogs are no longer enough if profits donât scale with them, especially when custom solutions and passâthrough costs compress margins.â
The reaction highlighted a broader AI âreâratingâ: markets are starting to separate structurally profitable AI businesses from those riding narrative momentum.â
From a macro lens, the Fedâs continued easing adds a different layer:â
Cheaper money supports risk assets, but rate cuts arriving alongside growth and laborâmarket concerns suggest the Fed is trying to engineer a soft landing rather than fuel another speculative wave.â
For consumers, credit card and other variableârate borrowing costs are beginning to edge down, though mortgage relief is slower and real purchasing power remains under pressure.â
The combination of AI reâpricing plus a lateâcycle Fed easing is pushing investors to reâexamine where future returns will actually come from.
đŻ Opportunity
Three key angles stand out for investors:
Upgrade your AI exposure
The blanket âbuy any AI tickerâ phase is fading. Quality AI names with durable moats, strong free cash flow, and improving margins may be mispriced as they get sold off with the rest of the theme.âFocus on companies where AI reduces costs, boosts pricing power, or clearly expands highâmargin revenue, rather than simply increasing capex.
Lean into the rotation
Weekly commentaries show value, dividend payers and Dowâstyle names holding up better than AIâheavy growth indices.âFor a Singapore/Malaysiaâcentric portfolio, this lines up with adding to incomeâoriented names (REITs, dividend stocks) and global value ETFs, while modestly trimming concentrated US megaâcap tech exposure.
Donât ignore realâeconomy AI winners
Despite the sellâoff, AI infrastructure spending is still boomingâdataâcenter M&A deals alone have reached above $60 billion in 2025, indicating that the buildout continues at scale.âThat supports picksâandâshovels plays (data centers, networking, power, semiconductors with proven profitability) instead of pure speculative AI software stories.
đ§Ÿ Bottom Line
AI is not dead; itâs being discounted more rationally. Broadcomâs stumble showed how quickly sentiment can flip when investors start asking tough questions about profitability and capital intensity.â
At the same time, a Fed that has now cut rates three times in 2025 keeps the backdrop supportive but not euphoric. With tech and AI leadership wobbling and value sectors showing relative strength, the market is nudging investors toward more balanced, fundamentalsâdriven positioning.â
In this phase, discipline beats FOMO: upgrade AI exposure rather than abandon it, embrace the rotation into quality and income, and remember that the biggest longâterm winners tend to be the businesses that turn shiny new technologies into sustainable cash flows, not just headlines.
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Disclaimer: This article constitutes the authorâs personal views and is for entertainment and educational purposes only. It is not to be construed as financial advice in any form. Please do your own research and seek advice from a qualified financial advisor. From time to time, I have positions in all or some of the mentioned stocks when publishing this article. This is a disclosure - not a recommendation to buy or sell stocks.