On Thursday, the AI sector's latest turbulence weighed down global stock markets, while escalating oil prices reached their highest point since May, driven by concerns over the conflict involving Iran.
The S&P 500 saw a 1.2% decline, marking its most significant drop since July, while the Nasdaq composite plunged by 2.6%. The impact of this tech stock weakness was so pronounced that it overshadowed positive performances among other sectors of the U.S. market, where most stocks appreciated. In contrast, the Dow Jones Industrial Average managed a modest increase, rising 11 points or nearly 0.1%.
Investors are increasingly anxious about AI stocks amid fears that the booming growth may face challenges due to rising borrowing costs for constructing data centers and acquiring additional AI chips. Additionally, there are concerns that stock prices have soared excessively following a prolonged market frenzy, despite ongoing growth in the sector.
Lam Research, which specializes in equipment and services for semiconductor manufacturing, reported better-than-expected profits and revenues for the summer quarter. However, instead of rising, its stock plummeted by 11.8%.
Similarly, other major tech companies faced declines following their quarterly announcements, which included some positive aspects. Meta Platforms, known for its Muse AI initiative, dropped 7% despite exceeding revenue expectations for the quarter, losing significant market value as profits did not meet projections. The parent company of Facebook and Instagram also revealed plans for a new stock class aimed at funding AI projects and other ventures.
Tesla's stock fell 3.1% after it posted a quarterly profit that surpassed analyst expectations, although its revenue fell short of forecasts.
The broader decline in AI stocks had a noticeable effect on Nvidia, which dropped 4.4%. As the largest company by market capitalization on Wall Street, Nvidia's stock movements significantly influence the S&P 500, making it a primary factor in pulling the index lower.
CoreWeave, which has financed purchases of Nvidia's AI chips for cloud rental services, has experienced volatility due to concerns regarding its debt levels, leading to a 10.1% decrease in its stock.
The downturn for AI and tech stocks began in Asia, impacting numerous indexes populated by industry players. The South Korean Kospi fell by 3.5%, Hong Kong’s Hang Seng dipped 3%, and Japan's Nikkei 225 dropped by 2.7%.
Additionally, oil prices surged, contributing to the declines in global stock markets. Brent crude oil prices jumped by 4% to $113.17, reaching a five-month high. Prices have risen dramatically from below $97 earlier this month due to uncertainties surrounding the resolution of the Iran conflict and its effect on the global energy sector.
In Europe, France's CAC 40 stock index experienced one of the continent's steepest losses, dropping 1.4%. Despite having fewer tech stocks compared to U.S. or Asian indexes, it was negatively impacted by rising yields on French government bonds.
French government bond yields have been climbing due to concerns about the country’s substantial public debt and a strained budget. Ongoing protests in France have heightened pressure on the government to increase its spending, potentially exacerbating its debt levels.
Concerns over high government debts are prevalent across many developed economies, including the United States. Such apprehensions, in conjunction with rising inflation and robust economic signals, have pushed U.S. bond yields to their highest levels in decades recently.
However, on Thursday, U.S. yields fell sharply, indicating that investors were gravitating toward the perceived safety of U.S. government bonds amid the declining tech stock landscape.
The yield on the 10-year treasury note dropped to 4.97%, down from 5.13% the previous day and over 5.30% earlier in the month, marking a significant shift in the bond market.
This decline occurred concurrently with a report suggesting that the U.S. economy may be performing better than expected, indicated by a reduction in unemployment benefit claims last week, signaling that layoffs remain low nationwide.
The health of the U.S. economy has generally supported stronger corporate profits, which contributed to the stock market reaching record highs earlier this month, despite various underlying concerns. On Thursday, two-thirds of the S&P 500 stocks recorded gains, but the substantial declines of influential tech stocks overshadowed them.
Major companies such as Procter & Gamble, Lockheed Martin, and CSX surpassed profit expectations for the summer, helping to soften the market’s overall losses.
Procter & Gamble's CEO, Shailesh Jejurikar, acknowledged ongoing "geopolitical and economic challenges" but maintained the company's growth forecasts for revenue and profits. Consequently, the stock for the brand known for Crest, Olay, and Oral-B rose by 5.6%.
In summary, the S&P 500 declined by 93.74 points, closing at 7,663.43. The Dow Jones increased by 11.89 points, ending at 52,867.98, while the Nasdaq composite dropped 694.00 points, closing at 26,008.86.
