AI Market Update: Q3 2025 in Review

AI sector trends up in Q3 amid volatility

AI stock valuations experienced volatility in Q3 amid expanding enterprise adoption and breakthrough announcements in generative AI models. At the same time, the sector remained sensitive to global political developments, with trade tensions and tariffs shaping supply chains and chip manufacturing. Overall, the AI market exhibited an upward trend with mild volatility, reflecting both investor enthusiasm and profit-taking pressures.

Alongside aggressive talent poaching, consolidation among AI leaders and hardware players through M&A and partnerships surged, reflecting a strategic imperative to synergize capabilities, accelerate product development and capture emerging market opportunities faster in a highly competitive ecosystem.

NVIDIA's investment in Intel (NASDAQ:INTC) and Microsoft's (NASDAQ:MSFT) diversification into Anthropic highlight evolving competitive dynamics where collaboration supplements direct rivalry.

Overall, tech companies exceeded earnings expectations due to AI integration, and AI chip advancements boosted investor confidence. Supply chains experienced some impact, but the disruptions were generally less severe than feared. Cross-border collaborations on quantum computing and AI standard setting highlighted a growing focus on technology sovereignty alongside cooperation. Regulatory developments included expanded US government equity stakes in tech and defense, fostering new public-private partnerships for critical technology.

Tension between China and NVIDIA intensified in August after China accused NVIDIA of violating anti-monopoly laws and issued a formal investigation. China also banned NVIDIA's RTX Pro 6000D chips, aiming to reduce reliance on US tech. Concurrently, the US resumed licensing H20 chip exports to China, though shipments remain pending.

September saw typical seasonal volatility and some profit taking, especially in high-valuation tech stocks, sparking caution among investors about potential overvaluation and market exhaustion signals.

The US Federal Reserve’s interest rate cut in September positively impacted growth sectors like AI and semiconductor stocks. A major realignment then occurred with news of the NVIDIA-Intel partnership. Talk of circular financing resurfaced following the deal, with Goldman Sachs (NYSE:GS) analysts raising concerns that NVIDIA's massive investments are creating circular revenue flows. Industry watchers so far advise monitoring and are not yet sounding alarm bells.

Overall, the third quarter reflects a market at a crossroads, buoyed by collaboration and monetary shifts, but mindful of structural risks and geopolitical complexities.

AI trends to watch in Q4

Several key factors could shape Q4 market dynamics for the AI space.

Talent acquisition remains critical, with the new H-1B requirements in the US expected to make it harder and more expensive for companies to hire foreign AI talent. That could particularly challenge startups and mid-sized firms.

Industry consolidation and rivalry are expected to intensify, with ARK Invest’s Cathie Wood noting that the leading AI competitors are likely to narrow to a few dominant players by year-end.

Meanwhile, Bain & Co.’s projection of a US$800 billion shortfall in AI compute revenues highlights a persistent funding and infrastructure gap that, if unmet, could slow AI deployment and dampen growth expectations.

Finally, the US government shutdown, if it continues, could increase uncertainty around Fed policy, potentially delaying or complicating interest rate decisions and adding volatility to markets as investors reassess the economy.

With these dynamics in play, Q4 is expected to bring heightened market sensitivity to external factors, shaping capital allocation and risk appetite in technology sectors. Balanced against headwinds, the outlook remains cautiously constructive as AI’s broad impact continues to reshape markets and industries.