Nasdaq crashes 3%: E2E Networks, ESDS Software, other AI-related shares fall up to 5%

E2E Networks and ESDS Software Solutions provide cloud computing and data centre services, which form part of the infrastructure supporting AI applications and computing workloads. MTAR Technologies also fell up to 5 percent, extending its decline from the previous session. The company supplies precision engineering products to various sectors. Black Box, which provides technology infrastructure and digital solutions, fell more than 1 percent.

The selling pressure in domestic AI-linked stocks came after the Nasdaq Composite dropped 3 percent on Friday, marking its steepest single-day decline since June. The S&P 500 also fell 1.8 percent. More than USD 2 trillion was wiped off the Nasdaq 100 last month as investors reassessed whether the hundreds of billions of dollars being committed to AI infrastructure would generate returns commensurate with the investment.

The concern is not necessarily about a slowdown in demand for AI but the rising cost of building the infrastructure required to support it. Investments in data centres, chips, power supply and computing capacity are increasing, while investors are becoming less certain about the returns these investments will generate. The sharp decline in US technology stocks has weighed on Indian firms linked to the AI infrastructure theme.

A sell-off in global technology shares can trigger caution among investors towards similar businesses in other markets, particularly those whose valuations and growth prospects are linked to AI-related investments. Ritesh Jain, founder of Pinetree Macro, sees the AI trade entering a more prolonged and damaging phase, with the possibility of a bubble unwinding. "We do have some world-class companies stuck in the whirlwind of the AI bubble and its apparent burst," he said.

"When money was freely available, people went bullish on the theme. Now the major red flag is hyperscaler capex. Markets are questioning these heavy capex numbers, sometimes alongside negative cash flow, and asking whether the business has a moat," he added. Another concern for investors is the growing reliance of AI companies on debt funding. This is challenging the view that companies at the centre of the AI boom are insulated from broader macroeconomic pressures.