Stocks fell sharply Thursday amid growing concerns about whether massive investments in artificial intelligence will be paid and high oil prices.
Shortly before market close, the Nasdaq Composite Index, where many AI-exposed technology companies are listed, fell 751 points, or 2.8%, before rebounding slightly to close 694 points lower at 26,009. The broader S&P 500 index fell 1.2%, while the blue-chip Dow Jones Industrial Average eked out a slight gain of less than 0.1%.
Investors are increasingly concerned about the huge debt AI companies are taking on to finance their data center spending and whether those companies will generate the profits they are counting on, according to Wall Street analysts.
“AI’s growth depends on investments (it’s one of the most capital-intensive sectors of all time), and as investments significantly exceed operating cash flow, companies depend on the scale of equity and debt investors to underwrite all expenses, but lately these markets are becoming less and less accommodating,” Adam Crisafulli, head of Vital Knowledge, said in a research note to investors Thursday.
The slowdown in debt issuance as the credit environment tightens could hamper companies’ ability to finance AI infrastructure development, Crisafulli added.
The Brookings Institution, a nonpartisan think tank, estimates that it will cost more than $10 trillion to develop AI infrastructure between 2025 and 2032. That would amount to the largest investment wave in U.S. history, eclipsing the construction of railroads in the 19th century and, more recently, the dot-com boom, according to Carl Weinberg, chief economist of the financial market analysis company High Frequency Economics.
Although many of the big players driving the AI boom remain highly profitable, investors are reassessing these enormous costs as their stock prices soar.
Markets’ plunge Thursday came amid a series of earnings reports that showed mixed results. Meta Platforms, which pushes its Muse AI agent, lost 7% after revenue topped estimates while profits fell short. Tesla fell 3.1% as the electric vehicle maker reported higher-than-expected summer profits but weaker revenue than analysts expected.
A rise in oil prices, driven by concerns about escalating war in Iran, also weighed on stocks Thursday. West Texas Intermediate, the U.S. benchmark, traded at $99.21 a barrel, up 2.1 percent, while Brent crude, the international standard, traded at around $113 a barrel, up 3.7 percent.
Gn bussni
