A wave of selling hit high-multiple growth and software stocks Tuesday afternoon as investors rotated out of the names that had led the recent market rally.
Twilio (NYSE: TWLO) fell 4.1%, Atlassian (NASDAQ: TEAM) dropped 4.5%, and SoundHound AI (NASDAQ: SOUN) declined 5% during the session.
Software companies are typically priced on earnings projected years into the future, making their valuations particularly sensitive to inflation expectations and Federal Reserve interest rate policy.
May import price data delivered the sharpest inflation surprise of the session, with prices rising 1.9% against a forecast of just 1.1%, producing an annual gain of 6.7%, the largest since August 2022.
That data complicated the widely held view that the Iran peace deal had cleanly resolved the near-term inflation problem facing markets.
Investors appeared to rotate into cyclical stocks on falling oil prices while positioning cautiously ahead of new Federal Reserve Chairman Kevin Warsh’s first Fed meeting later in the week.
The Bank of America fund manager survey added further structural pressure, with portfolio managers cutting allocations to tech stocks broadly and naming an AI bubble as the second-largest tail risk, cited by 28% of respondents.
SpaceX’s announcement that it is acquiring AI coding platform Cursor for $60 billion also contributed to investor unease, signaling that the most valuable AI software assets are being consolidated into mega-cap infrastructure plays rather than remaining available as standalone platforms.
SoundHound AI shares are extremely volatile and have recorded 62 moves greater than 5% over the last year, suggesting the market views this latest decline as meaningful but not fundamentally business-altering.
The previous major move for SoundHound came 11 days earlier, when the stock dropped 7.4% after a stronger-than-expected jobs report signaled the Federal Reserve may keep interest rates higher for longer.
The U.S. economy added 172,000 nonfarm payroll jobs in May, significantly surpassing economists’ expectations of around 85,000, while the unemployment rate held steady at 4.3%.
That robust labor market data eased concerns about an economic slowdown but diminished the likelihood of near-term interest rate cuts, pushing investors toward a higher-for-longer rate scenario.
A prolonged high-interest-rate environment creates headwinds for growth-oriented technology stocks, as it pressures valuations by making future earnings less valuable in present-day terms.
SoundHound AI is down 33.7% since the beginning of the year and, at $7.03 per share, is trading 67.2% below its 52-week high of $21.40 reached in October 2025.
Investors who purchased $1,000 worth of SoundHound AI shares at the IPO in April 2022 would now be holding an investment worth $936.67, underscoring the stock’s turbulent trajectory since its public debut.
