Is the Stock Market Sending a Warning Signal About Artificial Intelligence (AI) Stocks?

You may be surprised to learn that even with a war in Iran and a so-so economy, the S&P 500 is only down around 5% from its high. The reality is that there's a lot of strength in various sectors across the market, and most companies are doing just fine. However, there's one sector of the market that isn't doing as well as the others in 2026, and it may come as a surprise: artificial intelligence (AI).

Although AI gets a ton of publicity and a huge amount of spending, investors haven't shown these stocks nearly as much love as they did during the previous three years. This has caused many impressive AI stocks to sell off, which may be a huge warning sign about the sector as a whole. However, I think investors should get a different signal from this sell-off, and now is the time to act.

Image source: Getty Images.

AI stocks look like bargains

While there isn't an AI index investors can point to, one common exchange-traded fund (ETF) I use to track general AI stock performance is the Global X Artificial Intelligence & Technology ETF. This ETF is down around 9% from its all-time high, so it has fallen considerably more than the S&P 500, but it's still not a level most would find concerning.

If you peel back the layers a bit and look at some top investment options, you'll see several popular AI stocks down significantly from their highs. Among them are Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), and Palantir Technologies (NASDAQ: PLTR). These three represent the leaders in three different areas of AI investing. Nvidia is a play on AI infrastructure, Palantir is an AI software company, and Microsoft is a cloud infrastructure and business integration investment.

Of these three, Nvidia is faring the best, but Microsoft and Palantir are each having a much worse time.

PLTR data by YCharts.

But when you dig into the results of each of these businesses, it's clear that AI demand is still there, and each expects huge growth for several years.

I think investors are experiencing a bit of AI fatigue and are looking to alternative investments rather than AI. While this may be bad for AI stocks in the short term, over the long term, it's an excellent opportunity for investors to buy AI stocks at a discount. Demand for AI is still expected to expand through 2030, and all three of these stocks could be great picks over that timeframe.

Keithen Drury has positions in Microsoft and Nvidia. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.