Wall Street's AI Spending Bet Sends Tech Stocks Tumbling

The Nasdaq Composite dropped 694 points Thursday, its biggest decline since June, as investors questioned whether technology companies can sustain heavy spending on artificial intelligence. The index fell 2.6% to 26,008.86. Across Wall Street, corporate earnings and spending plans tested whether the AI investment boom can keep delivering the returns investors demand.

A spending boom meets the market’s demands

The S&P 500 fell 93.74 points, or 1.21%, to 7,663.43, while the Dow Jones Industrial Average gained 11.89 points, or 0.02%, to 52,867.98. A separate closing snapshot put the S&P 500 at 7,663.39 and the Dow at 52,866.85. In that snapshot, the Nasdaq 100 fell 2.90% to 28,958.69.

Chipmakers led the slide. The iShares Semiconductor ETF fell nearly 7% in the closing snapshot, after reports put it down 3% earlier in the session. The closing snapshot listed intraday lows of 9% down for SanDisk and 7% down for SK Hynix, AMD, Intel and Meta. An earlier table showed several of those companies down 4% at that point. The snapshots capture a fast-moving sell-off, with technology valuations exposed to each change in investors’ expectations.

Tesla beat Wall Street estimates for the third quarter, but its shares fell 3% in one snapshot and 2% in another as investors reacted to lower profitability. The company cut its capital-expenditure estimate for the year to $20 billion from $25 billion. Meta also beat earnings and revenue estimates and issued strong guidance for the coming quarter. Its shares still fell 7% in the closing snapshot, while its annual capital-expenditure estimate remained largely unchanged.

Signs of spending discipline looked to investors like a possible warning that the AI investment boom could slow, with consequences for supplies across the industry, economist David Rosenberg said. In August, Goldman Sachs projected global AI investment would exceed $1 trillion this year. “Following an extraordinary run in technology stocks, markets are becoming more demanding around evidence of the payoff from high investment in AI and concerned about the sustainability of this spending amid higher interest rates,” said James McCann, senior economist at Edward Jones.

Oil, state power and market jitters

Oil prices rose after a New York Times report, citing U.S. officials, said the United States and Israel were planning strikes on Iran after the midterm elections. The proposed operation was described as “short but intensive.” Brent crude rose more than 3% to above $112 a barrel in one snapshot and 4% to above $113 in another. West Texas Intermediate gained 2% but stayed just below $100 a barrel in the earlier snapshot. The reports said rising prices revived concern about pressure on supplies.

Treasury yields fell as investors shifted toward assets they considered safer. The 10-year U.S. Treasury yield dropped 11 basis points Thursday, reaching its lowest level in about a month; another closing snapshot reported an 18-basis-point fall to about 4.97%, below 5% for the first time in almost a month. JPMorgan’s markets intelligence desk said the bullish market tone had “reversed overnight” and described a “flight-to-quality trade.” It cited “the still fragile narrative around AI financing concerns and the lack of conviction / re-grossing from the recent tech reversal.” The bank also said hyperscalers’ corporate bond spreads had widened to levels last seen in July.

The volatility reaches beyond tech

France’s 10-year OAT yield rose 7 basis points amid political unrest. That week, the yield topped 5% for the first time in 24 years amid cost-of-living riots. The report offers no account from people involved in the unrest, only the market measure attached to it.

CoreWeave, a neocloud company facing investor scrutiny over its debt, fell 4% in one report and plunged 10% in another. Its shares had fallen 25% since Oct. 13 in the earlier account and 39% from early-October levels in the closing snapshot. Nvidia CEO Jensen Huang defended CoreWeave and other neocloud companies, saying demand was “off the charts.”

“Investors may be mostly passive investors nowadays, but their mood seems to follow the trend of individual stocks, plenty of which have been struggling even as the indices trade much closer to all-time highs,” said Paul Hickey, co-founder at Bespoke Investment. David Morrison, a senior market analyst at Trade Nation, called the market reaction “concerning,” adding that “intermediate support levels are creaking dangerously.” The reports described volatile weeks for traders as the midterm elections approached, while Treasury bonds again acted as safe havens after a long period of selling tied to inflation and fiscal-instability concerns.