Mumbai: The AI bubble just blinked. After months of non-stop euphoria, cracks are showing in global markets – and India’s so-called AI proxy stocks are getting singed. Time for panic? Not yet. But the party lights just dimmed a little.
The Global AI Chill
The global AI bubble finally looks human. The same trade that supercharged Wall Street into record highs is wobbling. Nvidia and Palantir, the poster boys of the AI frenzy, led a sharp tech sell-off this week. The S&P 500 and Nasdaq both logged their biggest one-day falls in nearly a month. Nvidia, recently crowned the world’s most valuable company at a $5 trillion valuation, dropped around 5% in just five days. Even the big boys are sounding cautious.
The CEOs of Morgan Stanley and Goldman Sachs warned of a likely market drawdown. Their polite phrasing translates to: “Brace for turbulence.” Kotak Equities summed it up neatly: “Most observers agree about a bubble – but there is no consensus on the duration, magnitude, or even the nature of the bubble.” Translation: no one knows how bad it gets or when it bursts.
India’s Proxy Players Catch the Cold
India doesn’t have an Nvidia or OpenAI yet. But it has plenty of “AI-linked” companies that investors have been chasing like it’s the next gold rush.
Those bets are now wobbling.
Netweb Technologies, the darling of India’s AI hardware ecosystem, is down 18% in five days and 10% in a single session. That’s the same stock that soared 110% in the first half of 2025. Call it karma or correction, but it’s a reality check.
Anant Raj, the real estate firm turned data center player, slipped 5%. E2E Networks, powering AI workloads in the cloud, shed 2%. Techno Electric is down 6%. Even Affle (India), known for its AI-driven digital marketing mojo, lost 8%.
Investors also punished Orient Technologies (-10%), Black Box (-1%), and KPIT Technologies (-2%). Vinit Bolinjkar of Ventura Securities says it’s not panic – just global profit booking. “Valuation concerns have spilled over into India, where investors had rushed into AI-linked proxy plays,” he noted. Vipul Bhowar from Waterfield Advisors added perspective: India’s minimal direct AI exposure actually saved the broader market.
Translation – thank your lucky stars India isn’t all in on AI yet.
Valuation Madness Comes Home
Here’s the ugly truth: Indian AI proxy stocks are priced like they’ve already conquered the world.
- Netweb Technologies trades at a P/E of 138x.
- E2E Networks: 177x.
- Anant Raj: 49x, still above the sector average.
These are not value plays; they’re adrenaline trades.
Prashanth Tapse of Mehta Equities says the pullback is about “valuation fatigue.” After months of nonstop buying into anything remotely connected to AI-chips, cloud, and automation, prices simply got ahead of reality.
“When investors buy AI ecosystem stocks, they’re buying a future dream, not current earnings,” Tapse said. “The sell-off is a reminder that growth may take longer, margins may compress, and competition is heating up.”
Still, he believes long-term believers shouldn’t flee. “Timing and staggered entry are key,” he advises. Translation: Don’t chase. Don’t dump. Play it smart.
Vishnu Kant Upadhyay of Master Capital Services calls it a “sentiment reset,” not a structural breakdown. “Valuations had moved well ahead of fundamentals.
The correction just resets expectations,” he said. He expects a sectoral rotation – money moving from flashy AI themes to steadier plays like financials, capital goods, and manufacturing. Sensible move, considering those stocks still make things, not just promises.
Lessons from History – and the Three Ls
If history teaches anything, it’s that bubbles never admit they’re bubbles until after they burst. Journalist Andrew Ross Sorkin’s latest work revisits the 1929 stock market crash, and the timing couldn’t be more poetic.
His takeaway? Every mania boils down to three Ls: Leverage, Liquidity, and Lunacy.
- Leverage – Excess borrowing always finds a way to bite back.
- Liquidity – Too much easy money fuels false confidence.
- Lunacy – Investors start believing valuations are immortal.
The AI bubble checks all three boxes. Palantir trades at 230x forward earnings, a dozen loss-making AI start-ups are worth nearly $1 trillion, and private markets are brimming with blind optimism.
Financial sector leverage is rising again. Hedge funds are borrowing more. Private credit is ballooning. It’s 2007 déjà vu, just with better graphics and ChatGPT on the side.
Sorkin doesn’t expect a 1930s-style collapse, though – central banks have learned their bailout game well. The Fed will print before panic. Still, the political and financial hangover from this era of easy money could get ugly.
What Investors Should Really Do
Let’s skip the drama: the AI story is intact. It’s just overhyped right now. India is still laying its digital and data infrastructure, and AI adoption here is in chapter one, not the epilogue.
For investors, this correction isn’t a curse; it’s a classroom. A few lessons to tattoo in your brain:
- Don’t chase hype. By the time the average investor hears about an “AI play,” it’s already overpriced.
- Check valuations. A P/E north of 100x isn’t “potential”; it’s fantasy.
- Stay staggered. Enter gradually. Build positions, don’t gamble.
- Diversify. AI won’t save you from bad timing, but balance will.
As one analyst put it, “AI is real technology. But bubbles deflate – slowly or suddenly. The key is staying invested without getting intoxicated.”
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