What Happened?

A number of stocks fell in the morning session after markets became increasingly wary of high valuations following a significant AI-driven rally. The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market. 

A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector. Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Leisure Facilities company Xponential Fitness (NYSE: XPOF) fell 3%. Is now the time to buy Xponential Fitness? Access our full analysis report here, it’s free for active Edge members.
• Education Services company Adtalem (NYSE: ATGE) fell 4.6%. Is now the time to buy Adtalem? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Adtalem (ATGE)

Adtalem’s shares are somewhat volatile and have had 12 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 4 days ago when the stock dropped 28.3% on the news that the company reported third-quarter 2025 results that beat Wall Street estimates, but a weak forward-looking revenue forecast appeared to spook investors. For the quarter, revenue grew 10.8% year-over-year to $462.3 million, and adjusted earnings per share was $1.75, both surpassing analyst projections. Adtalem also reiterated its full-year guidance for revenue and earnings. However, the market seemingly focused on the weaker outlook, as analysts project revenue growth will slow to 6.4% over the next 12 months, a significant deceleration. The combination of a soft forecast and the decision not to raise annual guidance, despite the quarterly outperformance, signaled potential challenges ahead, leading to a sharp sell-off in the stock.

Adtalem is up 1.5% since the beginning of the year, but at $94.18 per share, it is still trading 39% below its 52-week high of $154.45 from September 2025. Investors who bought $1,000 worth of Adtalem’s shares 5 years ago would now be looking at an investment worth $3,752.

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