The first cracks surfaced when a sharp sell-off in global tech stocks earlier this week, led by Nvidia and Palantir Technologies, has rattled investors worldwide. The S&P 500 and Nasdaq Composite both suffered their biggest one-day declines in nearly a month. Nvidia, which recently became the world’s most valuable company by crossing a $5 trillion market cap, has fallen about 5% in the last five days.
According to Kotak Equities, the debate over an AI bubble is growing louder. “Most observers agree about a bubble,” the brokerage noted, “but there is no consensus on the duration, magnitude, or even the nature of the bubble.”
Indian AI proxies feel the heat
India’s markets don’t yet have a direct AI heavyweight, but investors have been chasing exposure through companies linked to the broader digital and data ecosystem. Many of these counters have now turned volatile.
Vinit Bolinjkar, Head of Research at Ventura Securities said the recent correction reflects global profit-booking rather than any structural weakness. “However, valuation concerns have spilled over into India, where investors had rushed into AI-linked proxy plays,” he said.
Netweb Technologies, which builds high-performance computing systems used in AI workloads, data centers, and defence applications, has been the biggest casualty, falling 18% in the past five days and nearly 10% on Thursday alone. The company was one of the biggest AI-related gainers in the first half of 2025, rallying 110%.
Anant Raj, which operates and develops data centers, is down 5% over the same period. The company had jumped 40% in the last six months on expectations that it would benefit from India’s data infrastructure boom driven by AI adoption.
“The market had already priced in substantial growth and profitability ahead of visible delivery,” said Prashanth Tapse, Senior VP (Research) at Mehta Equities. “When any part of that future narrative is questioned, these stocks face sharp corrections.”
E2E Networks, a cloud infrastructure provider that supports AI and machine-learning workloads, has declined 2% in five days, while Techno Electric, which helps build data center power infrastructure, is down 6%.
Similarly, Orient Technologies, which supplies enterprise IT and automation solutions, fell 10%, and Affle (India), a mobile advertising and digital analytics company that uses AI for targeted marketing, lost 8%. Black Box, which provides networking and IT integration solutions, slipped 1%, while KPIT Technologies, a key player in AI-led automotive and mobility software, fell 2%.
Stocks already running on high valuations
The concern is that some of these Indian AI proxy companies are trading at much higher valuations given the run-up in the last few months. For instance, Netweb Technologies is trading at price-to-earnings P/E of 138x. E2E Networks, on the other hand, is commanding a P/E of 177x. Anant Raj has a multiple of 49x, well above the industry median.
Analysts say that much of the recent fall is tied to valuation fatigue after a spectacular run-up. Over the past year, investors, including India, poured into anything remotely linked to AI, whether cloud computing, chips, data storage, or automation, pushing stock prices far ahead of fundamentals.
Tapse from Mehta Equities notes that while investors buy into such “proxy plays” for long-term AI growth potential, any uncertainty about timelines or competition can spark sell-offs.
“When investors buy into AI ecosystem stocks, they are not investing in current earnings but in future potential. The sell-off is a reality check that growth may take longer to materialize, margins could compress, and competition in AI-linked infrastructure is intensifying,” he said.
He added that for those who believe in the 5-10 year AI and data center story, the correction may offer an opportunity. “Timing and staggered entry will be key rather than deploying all capital at once,” he said.
Vishnu Kant Upadhyay, AVP-Research at Master Capital Services, said the pullback looks more like a “sentiment reset” than a structural reversal.
“Valuations had moved well ahead of fundamentals, so a short-term correction looks more like a sentiment reset than a structural reversal. India’s technology and innovation-driven themes are still in their early stages,” he said.
Upadhyay added that the trend may spark sectoral rotation, with investors shifting from expensive new-age themes to more reasonably priced sectors such as financials, capital goods, and manufacturing.
“While data center and infrastructure enablers like Netweb and Anant Raj may stay volatile in the near term, they still present long-term opportunities once valuations stabilize,” he said.
AI story still intact, but patience is key
Despite the correction, analysts agree that the AI mega trend remains intact. With India investing heavily in digital infrastructure, data centers, and automation, the ecosystem for AI-related growth continues to expand.
“India’s markets have limited direct AI exposure, prompting investors to pursue volatile high-growth names,” said Bolinjkar. “This may increase short-term risk aversion, but the long-term trend remains favorable.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)