Datacenter and chip costs fueled a sharp decrease in the AI sector, although non-AI stocks still had a strong showing.
The latest shudder for stocks in the AI industry pulled markets lower worldwide on Thursday, while oil prices hit their highest levels since May due to concerns regarding the war with Iran.
The S&P 500 fell 1.2% for its worst day since July, while the Nasdaq composite tumbled 2.6%. The weakness in tech stocks was so significant that it masked strength across the rest of the US market, where the majority of stocks actually rose. The Dow Jones Industrial Average added 11 points, or less than 0.1%.
AI-related stocks have been volatile amid fears that their boom may be threatened by the high cost of borrowing money to build datacenters and purchase AI chips. Concerns also persist that valuations climbed too high following a years-long frenzy, even as companies in the industry continue to report growth.
Lam Research, whose equipment and services support semiconductor manufacturing, reported summer profit and revenue gains that were slightly stronger than analysts expected. Typically, such results would boost a stock’s price, but Lam Research shares tumbled 11.8%.
Other major tech stocks also declined following quarterly reports that contained at least some encouraging signs.
Meta Platforms, which is promoting its Muse AI agent, lost 7% after reporting stronger revenue for the latest quarter than analysts expected, shedding tens of billions in market value, though its profit fell short. The company behind Facebook and Instagram also announced it was creating a new class of stock to raise capital for AI Wall Street by total value, its stock movements carry more weight on the S&P 500 than any other, and it was the single strongest force pulling the index lower.
CoreWeave, which has borrowed money to buy Nvidia’s AI chips to rent out to customerse to debt concerns. Its stock dropped 10.1%
The weakness for AI and other tech stocks originated in Asia, where indexes are heavily weighted toward the industry. South Korea’s Kospi tumbled 3.5%, Hong Kong’s Hang Seng dropped 3%, and Japan’s Nikkei 225 sank 2.7%.
A jump in oil prices also weighed on global stock markets.
The price for a barrel of Brent crude oil leaped 4% to $113.17 after touching its highest level in five months. It has climbed from less than $97 at the start of the month due to uncertainty regarding when the war with Iran will allow the global energy industry to return to normal.
In Europe, France’s CAC 40 stock index suffered one of the continent’s sharpest losses with a drop of 1.4%. While it contains fewer tech stocks than Asian or US indexes, it was hurt by another spike in yields for French government bonds.
Yields have generally been climbing there due to worries about the government’s significant debt load and strained budget. Violent protests across France have increased pressure on the government to boost spending, which could further add to its debt.
Concerns regarding large government debt are weighing on almost every developed economy, including the United States. Such anxieties, combined with high inflation, signs of a resilient US economy, and other factors, have recently pushed yields in the US bond market to their highest levels in decades.
However, US yields fell sharply on Thursday, signaling that investors were purchasing US government bonds in search of safer assets as AI stocks tumbled.
The yield on the 10-year treasury dropped to 4.97% from 5.13% late on Wednesday and from more than 5.30% earlier this month. That represents a major shift for the bond market.
Thursday’s decline in yields occurred even as another report suggested the US economy may be performing better than economists anticipated. It noted that fewer US workers applied for unemployment benefits last week, which could indicate that layoffs remain low nationwide.
That solid economy has helped US companies broadly achieve higher profits, which propelled the US stock market to a record high earlier this month despite the various worries tugging at it. Two out of every three stocks within the S&P 500 rose on Thursday, only to be overshadowed by the declines of more influential tech stocks.
Procter & Gamble, Lockheed Martin, and CSX were among the latest companies to join the list of those exceeding profit expectations for the summer, and gains for their stocks helped limit the market’s losses on Thursday.
CEO Shailesh Jejurikar said Procter & Gamble expected “geopolitical and economic challenges” to continue, but it stood by its forecasts for growth in revenue, profit and other measures for the full year. The stock price for the company behind the Crest, Olay and Oral-B brands rose 5.6%.
All told, the S&P 500 fell 93.74 points, to 7,663.43. The Dow Jones Industrial Average added 11.89, to 52,867.98, and the Nasdaq composite tumbled 694.00, to 26,008.86.
