Wall Street faced a harsh reality check Tuesday as investors bailed on this year's most overbought tech stocks, erasing over $500 billion in market value in just one day.

At the center of the selloff was Palantir Technologies Inc. (NASDAQ:PLTR), plunging 9.3% by afternoon in New York, even after topping analyst forecasts and raising its full-year outlook.

The reaction speaks volumes about where sentiment now stands: strong earnings are no longer good enough when your stock has already soared 170% in less than a year.

AI Euphoria Cracks: $500 Billion Erased From Wall Street’s Favorite Tech Stocks

After hitting record highs Monday and boasting a 40% year-to-date gain, the Global X Artificial Intelligence & Technology ETF (NYSE:AIQ) slid 3.6% Tuesday, as some of its top-performing holdings erased over half a trillion dollars in what appears—for now—to be a robust pullback.

A Valuation Check Long Overdue?

Some analysts highlight that Tuesday’s selloff it was only a matter of time.

The Shiller CAPE ratio—a widely followed measure of long-term market valuation—climbed to 40.95 this week, its highest reading since August 2000, just before the dot-com bubble burst.

At these levels, history hasn't been kind to investors.

"We believe today's valuations might serve as a helpful indicator of longer-term stock market performance," said Phil Wool, chief research officer at Rayliant Research.

Wool pointed to Robert Shiller's historical data, which shows that when CAPE exceeds 30x, "stock returns over the next 10 years have been slightly negative to low single digits."

Wool urged caution, pointing to international equities as a potential source of better value. The MSCI World ex-USA Index currently trades at a CAPE of just over 20, roughly in line with its 20-year average—far cheaper than the U.S. benchmark.

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