Tech stocks are dropping — and so are the markets

A drop in tech stocks is taking markets down with it. 

As of Wednesday after the bell, Nasdaq dropped 0.67% while the S&P 500 dipped 0.24%. The Dow Jones Industrial Average closed with meager gains of just 0.036%. 

The S&P 500 Information Technology index dropped 0.77%. 

At market close, Nvidia reported a 0.14% dip, Microsoft dropped 0.79%, and Apple saw a 1.97% drop. 

Dips on major stock market indexes come as Palantir shares have slid significantly in the last week.

Shares in the artificial intelligence software maker Palantir dropped more than 6% on Wednesday morning. It closed with more than a 1% dip.  

The company's stock price has dropped around 20% over the past week, eradicating the gains made after it reported strong quarterly earnings on August 4.

Despite announcing a dazzling second quarter, its shares began to slip within a day, now falling for the sixth consecutive day of trading.

One explanation for this is the broader AI pullback among investors on Tuesday. Shares in chipmakers AMD, Nvidia, and Broadcom were all in the red, dragging the S&P 500 down 0.59%.

Catalyzing investor jitters was a report by The Verge on Monday that OpenAI CEO Sam Altman believes AI is in a bubble.

However, Palantir's woes cannot be attributed solely to the industry-wide retreat. Some industry onlookers believe the company could be over-valued.

Palantir’s shares trade at more than 600 times earnings and about 120 times annual sales, ratios far beyond those seen in past tech booms, according to The Economist in an article published following the company's earnings report. To make those numbers plausible, revenues would need to rise more than fivefold within five years—demanding growth of over 40% annually, the piece continues.

On top of Palantir’s stock troubles, the Federal Reserve’s most recently released minutes highlights its inflation fears, which could also have played a role in Wednesday’s market dips. 

Most Federal Reserve officials in July believed that the risk of higher inflation outpaced concerns about the state of the labor market, according to the latest minutes released by the central bank.

Inflation and the health of the U.S. job market came up in the discussions, with officials determining that price increases constituted a larger risk to the U.S. economy than job losses. "A majority of participants judged the upside risk to inflation as the greater of these two risks," a record of the two-day meeting said.

This comes days before Federal Reserve Chair Jerome Powell is set to give a speech at the annual Jackson Hole economic policy summit. Experts have said Powell’s speech could indicate what the chair is thinking in terms of rate cuts. However, with the latest released minutes showing inflation is a bigger concern than weak job market gains, rate cuts could be more of a dream than a reality. 

— Niamh Rowe and Joseph Zeballos-Roig contributed to this article.