The technology-heavy Nasdaq 100 index experienced a notable pullback on Friday, marking a shift from its recent rally. The decline was broader than typical market fluctuations, driven by profit-taking in leading artificial intelligence and semiconductor stocks. This movement reflects a changing backdrop of rising bond yields and emerging doubts about the pace of AI infrastructure development, a combination that is tempering the previously sky-high investor expectations.
Rising Yields and Sector-Specific Concerns Weigh on Sentiment
Friday’s trading session saw the Nasdaq Composite post its weakest performance in three weeks. Two primary factors contributed to the pressure: renewed concerns over the medium-term AI outlook for certain bellwether companies and a climb in U.S. Treasury yields.
A significant catalyst at the individual stock level was Broadcom (AVGO). Despite the chip and infrastructure giant reporting strong fourth-quarter results, the market focused on what it perceived as a “cautious” margin forecast for its AI business and a $73 billion order backlog. Some analysts viewed this backlog as insufficient to justify the company’s ambitious valuation. In response, Broadcom shares fell by double digits, dragging down the broader semiconductor sector.
Simultaneously, reports suggesting potential delays in AI data center expansion dampened the mood. A Bloomberg article concerning Oracle (ORCL), which indicated certain OpenAI data center projects might be pushed from 2027 to 2028, fueled doubts about the speed of the current build-out cycle. While Oracle disputed the report, the nervousness spread to other AI-related equities.
The interest rate environment added further headwinds. The yield on the 10-year U.S. Treasury note climbed to approximately 4.19% during the day. Higher yields present a challenge for richly valued growth stocks, as they increase the discount rate applied to future earnings. Market breadth and sentiment clearly reflected this shift, with declining stocks far outnumbering advancers, a rise in volatility, and a noticeable reduction in risk exposure ahead of the weekend.
Sector Performance: Semiconductors Underperform Amid Selective Gains
Skepticism was most palpable in the chip sector. Following Broadcom’s lead, other AI beneficiaries also retreated. Shares of Nvidia (NVDA), Advanced Micro Devices (AMD), and Micron Technology (MU) came under significant pressure. The underlying concern is that short-term margin pressures and potential infrastructure delays may no longer support the steep price appreciation seen over recent months.
A standout performer was Lululemon Athletica (LULU). The athletic apparel maker’s stock jumped following an upgraded annual forecast and the announcement of an incoming CEO change. This surge was notable as it occurred on the same day it was confirmed that Lululemon will be removed from the Nasdaq 100 index effective December 22, 2025. This creates a scenario where fundamentally positive news clashes with a technical selling factor due to impending index rebalancing.
Outside of the index heavyweights, cannabis stocks like Canopy Growth (CGC) and Tilray Brands (TLRY) saw spectacular moves. Speculation around a potential reclassification of the industry at the U.S. federal level triggered gains of 40% to 50%, creating a clearly speculative niche within an otherwise weaker tech landscape.
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Impending Index Rebalancing to Drive Trading
After the market close, Nasdaq announced the annual reconstitution of the Nasdaq 100, which will take effect before trading begins on December 22, 2025. This adjustment is particularly important for institutional investors and ETF providers who must replicate the index and adjust their holdings accordingly.
Companies being added to the index are:
* Alnylam Pharmaceuticals (ALNY)
* Ferrovial (FER)
* Insmed (INSM)
* Monolithic Power Systems (MPWR)
* Seagate Technology (STX)
* Western Digital (WDC)
Companies being removed from the index are:
* Biogen (BIIB)
* CDW (CDW)
* GlobalFoundries (GFS)
* Lululemon Athletica (LULU)
* ON Semiconductor (ON)
* The Trade Desk (TTD)
Increased trading volume and noticeable repositioning flows are anticipated in these names in the coming week as major index funds and products like the Invesco QQQ Trust (QQQ) adjust their weightings.
Technical and Macroeconomic Backdrop
From a chart perspective, the retreat represents a clear rejection of recent highs. The index now trades slightly below its 50-day moving average after losing just over 2% for the week. While the Nasdaq 100 sits roughly 3% below its 52-week high, it remains a substantial 48% above its annual low, underscoring the strength of the prevailing longer-term uptrend.
With a Relative Strength Index (RSI) hovering around 55, the overbought condition has dissipated, but there is no sign of being oversold. The annualized 30-day volatility stands near 16%, indicating a moderate but perceptibly higher level of fluctuation compared to calmer market periods. The 10-year Treasury yield near 4.2% acts as a short-term burden for growth stock valuations, despite the recent benchmark interest rate cut by the U.S. Federal Reserve.
Outlook: A Test for the AI Investment Thesis
The coming week will center on a critical question regarding the durability of the AI narrative in equity markets. A key focus will be whether pullbacks in heavyweights like Nvidia and Broadcom attract buyers or if investors continue to trim positions and rotate into less interest-rate-sensitive sectors.
Upcoming economic data, including retail sales and Consumer Price Index (CPI) inflation figures, will also be in focus. These releases will provide clues on the feasibility of the Fed’s desired “soft landing” for the U.S. economy. For the Nasdaq 100, the near-term mix of higher yields, index rebalancing, and heightened scrutiny of AI valuations may lead to continued volatility. The intermediate-term trend, however, remains intact, contingent on technology sector earnings growth keeping pace with elevated valuations.
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