U.S. technology-linked ETFs endured a wave of selling pressure in March 2025 as investor enthusiasm for the artificial intelligence boom cooled and macroeconomic uncertainties-from tariff risks to geopolitical tensions-dampened appetite for high-growth names.

The Invesco QQQ Trust (QQQ  ), which tracks the tech-heavy Nasdaq 100 Index, plunged 9.1% in March, its worst monthly performance since December 2022.

Unlike previous corrections, where dip-buying quickly followed. This time, investors pulled back. QQQ posted $1.4 billion in outflows, snapping a four-month streak of inflows and signaling rising caution.

The Technology Select Sector SPDR Fund (XLK  ) slumped 10%, marking its steepest one-month drop since September 2022. The ETF also bled $770 million in March, bringing combined outflows over the past two months to more than $1.1 billion.

Semiconductor-related ETFs-previously the poster children of the AI revolution-were particularly hard hit.

The iShares Semiconductor ETF (SOXX  ) suffered $200 million in outflows, marking the fourth straight month of capital leakage.

The VanEck Semiconductor ETF (SMH  ) and SPDR S&P Semiconductor ETF (XSD  ) recorded outflows of $210 million and $40 million, respectively.

These ETFs have entered a bear market after falling more than 20% from their late 2024 peak.

Valuation Reset: The AI Trade Comes Back to Earth

According to Ed Yardeni, president at Yardeni Research, the semiconductor sector has now "mostly erased its valuation premium" over the broader market-an edge it had built up since the debut of ChatGPT in late 2022.

"We've opined that DeepSeek would be a net positive for AI demand, as cheaper training and model proliferation helps non-tech companies adopt AI and boost productivity. Perhaps there was a mini-bubble built up on AI euphoria," Yardeni said in a recent note.

Yet, he also expressed room for optimism.

"Since the Magnficent-7 stocks' long-term earnings expectations and valuation multiples already have realigned closer to historical averages without a bear market or recession, we think further downside for the AI trade is limited," Yardeni added.