First cracks in AI bubble rattle India's proxy stock investors. How worried should you be?

Core Insights - The global tech stock market is experiencing significant sell-offs, particularly affecting companies like Nvidia and Palantir Technologies, leading to the largest one-day declines in the S&P 500 and Nasdaq Composite in nearly a month [1][12] - Indian markets are seeing increased volatility in AI proxy companies as investors seek exposure to the digital and data ecosystem, despite the absence of a direct AI heavyweight [2][12] Company Performance - Nvidia has seen a decline of approximately 5% over the last five days after reaching a market cap of $5 trillion [1] - Netweb Technologies, a high-performance computing systems provider, has fallen 18% in the past five days and nearly 10% on a single day, despite a 110% rally in the first half of 2025 [5][12] - Anant Raj, which develops data centers, is down 5% after a 40% increase over the last six months due to expectations of benefiting from India's data infrastructure boom [6][12] - E2E Networks, a cloud infrastructure provider, has declined 2% in five days, while Techno Electric and Orient Technologies have seen declines of 6% and 10%, respectively [6][12] Valuation Concerns - Many Indian AI proxy companies are trading at high valuations, with Netweb Technologies at a P/E of 138x and E2E Networks at 177x, significantly above industry medians [7][12] - Analysts attribute the recent market decline to valuation fatigue after a significant run-up in stock prices, as investors have heavily invested in AI-related sectors [8][12] Market Sentiment - The recent sell-off is viewed as a "sentiment reset" rather than a structural reversal, with analysts suggesting that the technology and innovation themes in India are still in early stages [10][12] - There is a potential for sectoral rotation, with investors possibly shifting from high-valuation tech stocks to more reasonably priced sectors like financials and manufacturing [11][12] Long-term Outlook - Despite the current correction, analysts maintain that the AI mega trend remains intact, with ongoing investments in digital infrastructure and data centers in India [12] - The correction may present opportunities for long-term investors who believe in the AI and data center growth story, emphasizing the importance of timing and staggered entry [9][12]