Global stock markets have seen a sharp decline as fears grow that the surge in valuations for artificial intelligence (AI) companies is losing steam.

U.S., Asian, and European markets all dropped following warnings from bank executives about a possible significant market correction, spurred by record highs that made several firms seem overvalued.

On Tuesday, the tech-centric Nasdaq and S&P 500 experienced their largest single-day drops in almost a month.

Tech stocks heavily influenced the Nasdaq’s decline, which closed down by 2%. The AI stocks of the “grand seven” companies—including Nvidia, Amazon, Apple, Microsoft, Tesla, Alphabet (the parent company of Google), and Meta (the owner of Facebook, Instagram, and WhatsApp)—all recorded losses.

The S&P 500 faced setbacks primarily from tech stocks, notably Palantir, which saw an almost 8% decrease despite raising its earnings expectations just a day prior, ultimately finishing the session down by more than 1%.

Palantir has also found itself in the crosshairs of prominent short sellers who wager on a decline in its stock value.

Michael Burry, the investor renowned for predicting the 2008 financial crisis and inspiring the film The Big Short, has taken positions on two major AI firms, Palantir and Nvidia, drawing backlash from Palantir’s management and contributing to a drop in its stock price.

In a CNBC interview, Alex Karp, the CEO of Palantir, criticized Burry and other short sellers for attempting to “cast doubt on the AI revolution.”

Asian markets mirrored the decline experienced in the United States, suffering their largest drop in seven months amid concerns regarding tech stock performance, with Japanese and South Korean indexes falling over 5% from record highs reached just a day before. European markets in the U.K., France, and Germany also saw slight declines on Wednesday morning.

The market downturn follows cautionary statements from the CEOs of Morgan Stanley and Goldman Sachs about a potential correction.

Their warnings echo concerns raised by Jamie Dimon, CEO of JPMorgan Chase, the largest U.S. bank, who predicted in October that the market might crash within the next six months to two years.

“The chorus is getting louder,” stated Jim Reid, an analyst at Deutsche Bank. “We’re having discussions about whether we are on the verge of a stock price correction.”

“The last 24 hours have revealed a clear risk-off trend, as apprehensions regarding high valuations of tech companies have negatively impacted investor confidence,” Reid remarked.

Other analysts have raised doubts about investing in AI companies, noting that while substantial funding has been directed to a handful of tech firms, like OpenAI and Nvidia, the returns on investment thus far remain minimal.

Bitcoin prices briefly dipped below $100,000 (£76,764) for the first time since June, as investors divested from high-risk assets like cryptocurrencies due to economic uncertainty.

While Bitcoin hit a peak of over $126,000 in early October, it fell 3.7% throughout the month, marking its worst monthly performance in a decade, according to CoinMarketCap statistics.