The Nasdaq is about to be tested. Fresh data from the May Consumer Price Index (CPI) just dropped, leaving technology investors with a mix of relief and anxiety. The figures weren’t alarming for Wall Street, but did bring up very important issues regarding high-flying tech stocks.

The Inflation Breakdown: Good News and Bad News

Headline inflation also rose 0.5% in May to 4.2% for the year. This was in line with the expectations economists had to avoid a stock market panic session after all. But on a closer reading there’s a story in two parts. Excluding food and energy prices, core inflation rose 0.2%. This shows that underlying inflation is actually cooling down.

But the main driver of pain was energy prices, which had gone up 3.9% in a month because of the continued geopolitical tension between the U.S. and Iran. The direct impact of increased energy prices is very negative on consumer confidence and hence companies being cautious when investing.

AI Valuations Face a Reality Check

The inflation update came at an awful moment for the tech industry. Tech stocks were already in the bloodshed as Broadcom predicted a lackluster outlook for artificial intelligence chips. That single prediction brought about a serious selloff that wrought devastation on fellow chips developers such as AMD and Intel by double figures. The Nasdaq Composite fell more than 4% for the day, before the tariff scares that occurred in April 2025.

The current issue on investors’ minds is that the stock surge, driven by AI, may have become too hot, too soon. The market’s nerves are being rattled by worries of an early year scare when the Federal Reserve meets later in the month, as rapid growth tech stocks are already anxious about a rate hike this year.

The Massive $800 Billion Gamble

The Nasdaq’s next big test will come during its earnings season. The tech giants are investing an astounding $800 billion on AI infrastructure this year alone. Wall Street now is expecting to see evidence that this intense spending will bring a profitable outcome, rather than simply money throwing around. The tech companies need to demonstrate their value or the market correction may get further into the red.