diff --git a/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.spec.ts b/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.spec.ts
--- a/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.spec.ts
+++ b/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.spec.ts
@@ -131,9 +131,7 @@
 describe('preprocessInlineXmlTags', () => {
   it('replaces inline XML tags with italic markdown', () => {
     const text = 'Before <thinking>inner thought</thinking> After';
-    expect(preprocessInlineXmlTags(text)).toBe(
-      'Before *thinking: inner thought* After'
-    );
+    expect(preprocessInlineXmlTags(text)).toBe('Before *thinking: inner thought* After');
   });
 
   it('leaves block-level tags at start of text untouched', () => {
@@ -158,30 +156,37 @@
     const text = 'before <tag>  spaced  </tag> after';
     expect(preprocessInlineXmlTags(text)).toBe('before *tag: spaced* after');
   });
+
+  it('recursively processes nested inline XML tags', () => {
+    const text = 'Text <outer>before <inner>nested</inner> after</outer> more';
+    expect(preprocessInlineXmlTags(text)).toBe(
+      'Text *outer: before *inner: nested* after* more'
+    );
+  });
 });
 
 describe('parseXmlTagSegments', () => {
-  it('marks inline XML tags with isBlock false', () => {
+  it('parses inline XML tags', () => {
     const text = 'Before <thinking>inner thought</thinking> After';
     const segments = parseXmlTagSegments(text);
     expect(segments).toEqual([
       {type: 'text', content: 'Before '},
-      {type: 'xml-tag', tagName: 'thinking', content: 'inner thought', isBlock: false},
+      {type: 'xml-tag', tagName: 'thinking', content: 'inner thought'},
       {type: 'text', content: ' After'},
     ]);
   });
 
-  it('marks tag at start of text as block', () => {
+  it('parses multiple tags', () => {
     const text = '<plan>step 1</plan> then <result>done</result>';
     const segments = parseXmlTagSegments(text);
     expect(segments).toEqual([
-      {type: 'xml-tag', tagName: 'plan', content: 'step 1', isBlock: true},
+      {type: 'xml-tag', tagName: 'plan', content: 'step 1'},
       {type: 'text', content: ' then '},
-      {type: 'xml-tag', tagName: 'result', content: 'done', isBlock: false},
+      {type: 'xml-tag', tagName: 'result', content: 'done'},
     ]);
   });
 
-  it('marks tag preceded by newline as block', () => {
+  it('parses tag preceded by newline', () => {
     const text = 'Some text\n<thinking>\nline1\nline2\n</thinking>';
     const segments = parseXmlTagSegments(text);
     expect(segments).toEqual([
@@ -190,7 +195,6 @@
         type: 'xml-tag',
         tagName: 'thinking',
         content: '\nline1\nline2\n',
-        isBlock: true,
       },
     ]);
   });
@@ -208,7 +212,7 @@
   it('handles tags with hyphens in names', () => {
     const text = '<my-tag>content</my-tag>';
     expect(parseXmlTagSegments(text)).toEqual([
-      {type: 'xml-tag', tagName: 'my-tag', content: 'content', isBlock: true},
+      {type: 'xml-tag', tagName: 'my-tag', content: 'content'},
     ]);
   });
 
@@ -219,9 +223,7 @@
       {
         type: 'xml-tag',
         tagName: 'bug_report',
-        content:
-          '\n<location>file.ts</location>\n<description>a bug</description>\n',
-        isBlock: true,
+        content: '\n<location>file.ts</location>\n<description>a bug</description>\n',
       },
     ]);
   });

diff --git a/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.ts b/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.ts
--- a/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.ts
+++ b/static/app/views/performance/newTraceDetails/traceDrawer/details/span/eapSections/aiContentDetection.ts
@@ -10,7 +10,7 @@
 
 type ContentSegment =
   | {content: string; type: 'text'}
-  | {content: string; isBlock: boolean; tagName: string; type: 'xml-tag'};
+  | {content: string; tagName: string; type: 'xml-tag'};
 
 interface AIContentDetectionResult {
   type: AIContentType;
@@ -57,12 +57,10 @@
     if (match.index > lastIndex) {
       segments.push({type: 'text', content: text.slice(lastIndex, match.index)});
     }
-    const isBlock = match.index === 0 || /\n\s*$/.test(text.slice(0, match.index));
     segments.push({
       type: 'xml-tag',
       tagName: match[1]!,
       content: match[2]!,
-      isBlock,
     });
     lastIndex = match.index + match[0].length;
   }
@@ -82,7 +80,8 @@
     if (isBlock) {
       return match;
     }
-    return `*${tagName}: ${content.trim()}*`;
+    const processedContent = preprocessInlineXmlTags(content);
+    return `*${tagName}: ${processedContent.trim()}*`;
   });
 }