Poor earnings reports from tech giants triggered panic selling last night, with the S&P and Nasdaq indices hitting their lowest levels in a year and a half.

The weak earnings reports from the two major tech giants had a significant impact:

$Tesla(TSLA.US) can indeed be said to be very mismatched with its valuation. The fundamentals of car sales are declining in both volume and price, leading to a severe drop in gross margins. Meanwhile, the transition from hype to reality for AI-powered autonomous ride-hailing will take much longer. At the current valuation level, even the Robotaxi launch event might feel more like "buy the rumor, sell the news."

$Alphabet(GOOGL.US), on the other hand, doesn’t have major issues with its current performance, especially at the top-line level, where search ads and Google Cloud remain strong. On the cost side, the increase in first-party ad share has lowered customer acquisition costs, and previous layoffs continue to drive savings, resulting in both revenue and profits exceeding expectations.

However, the common problem these two companies highlight is the marginal deterioration in forward-looking performance under high valuations:

a) Both companies have raised capital expenditures. Tesla’s implied capex is set to return to $2.5-3 billion, while Google’s situation is more concerning—its new baseline is $12 billion per quarter, and buy-side expectations have already pushed annual capex above $50 billion. Google also hinted at accelerating hiring, clearly entering a phase of increased capital and labor investment.

b) Weak car sales expectations for Tesla aren’t new, but Google emphasized that due to strong APAC e-commerce ad spending last year, growth in the second half will face tough comps. Combined with weakening consumer trends, this spells trouble.

Market participants combined these signals into one clear takeaway: U.S. tech giants in H2, including Meta, may face a mismatch between rising costs and slowing revenue growth, leading to EPS declines outpacing revenue slowdowns.

Amid this fear, overvalued tech stocks saw a sharp valuation correction last night. Ironically, while increased capex should theoretically benefit AI stocks, they fell even harder—likely because the market views this spending as a Fear of Missing Out (FOMO)-driven arms race with little near-term payoff, raising sustainability concerns.

This is ultimately a valuation reset for overpriced tech giants. Among the three major companies tracked by Dolphin Research that have reported earnings so far—aside from Tesla—neither Netflix nor Google had fundamental issues; the problem is simply deteriorating forward-looking performance at high valuations.