The latest jolt in AI sector stocks sent global markets lower on Thursday, while oil prices rose to their highest levels since May on concerns over the war with Iran.
The S&P 500 fell 1.2% for its worst day since July, while the Nasdaq Composite Index fell 2.6%. The weakness in tech stocks was so overwhelming that it masked strength in the rest of the U.S. market, the majority of whose stocks actually rose. The Dow Jones Industrial Average added 11 points, or less than 0.1%.
AI stocks have been influenced by fears that their boom is at risk due to the high cost of borrowing money to build data centers and buy more AI chips. Concerns also remain that their prices have climbed too high after years of frenzy, even as companies in the sector continue to show growth.
Lam Research, whose equipment and services contribute to the manufacturing of semiconductors, for example, recorded profit and revenue gains for the summer slightly higher than those expected by analysts. Usually this helps push a stock price up, but Lam Research’s price fell 11.8%.
Other big tech stocks also fell following quarterly reports that contained at least a few encouraging nuggets.
Meta Platforms, which is pushing its Muse AI agent, lost 7% after reporting higher revenue for the latest quarter than analysts expected, losing tens of billions in market value even as its profit fell short. The company behind Facebook and Instagram also said it was creating a new share class to raise money to fund AI investments and other expenses.
Tesla fell 3.1% after reporting a summer profit higher than analysts expected, although its revenue was weaker than expected.
The global tide against AI stocks sent Nvidia down 4.4%. Since the chip giant is Wall Street’s largest company in terms of total value, its stock’s movements carry more weight on the S&P 500 than any other, and it’s the main force that has driven the index lower.
CoreWeave, which borrowed money to buy Nvidia’s AI chips that it rents to customers through the cloud, has been particularly shaky in recent weeks amid concerns about its debt load. It fell 10.1%.
The weakness in AI and other tech stocks started in Asia, where indexes are full of industry players. South Korea’s Kospi fell 3.5%, Hong Kong’s Hang Seng 3% and Japan’s Nikkei 225 2.7%.
Rising oil prices have also weighed on global stock markets.
The price of a barrel of Brent crude oil jumped 4% to $113.17 after reaching its highest level in five months. It soared from less than $97 earlier this month on uncertainty over when the war with Iran will allow the global energy sector to return to normal.
In Europe, the French CAC 40 stock index recorded one of the biggest losses on the continent with a drop of 1.4%. It has fewer technology stocks than Asian or American indices, but it was penalized by a further rise in French government bond yields.
Yields have generally risen there due to concerns about large government debt and budgetary constraints. Violent protests across France have increased pressure on the government to increase spending, which could further increase its debt.
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Concerns about the scale of public debt weigh on almost every developed economy in the world, including the United States. Those concerns, combined with high inflation, signals of a still-strong U.S. economy and other factors, have recently pushed U.S. bond market yields to their highest levels in decades.
But U.S. yields nonetheless fell sharply on Thursday, signaling that investors were buying U.S. government bonds looking for safer securities to hold as AI stocks fell.
The yield on the 10-year Treasury note fell to 4.97% from 5.13% late Wednesday and more than 5.30% earlier this month. This is a major breakthrough for the bond market.
Thursday’s drop in yields came even as another report suggested the U.S. economy may be doing better than economists expected. Fewer U.S. workers filed for unemployment benefits last week, according to the report, which could indicate that layoffs remain low across the country.
This strong economy has helped U.S. companies as a whole post stronger profits, which propelled the U.S. stock market to a record high earlier this month, despite many concerns weighing on it. Two out of three stocks in the S&P 500 rose on Thursday, only to be drowned out by declines in the most influential technology stocks.
Procter & Gamble, Lockheed Martin and CSX were among the latest companies to join the list of those that beat earnings expectations for the summer, and gains in their stocks helped limit the market’s losses Thursday.
CEO Shailesh Jejurikar said Procter & Gamble expected “geopolitical and economic challenges” to persist, but maintained its forecast for growth in revenue, earnings and other metrics for the full year. The stock price of the company behind the Crest, Olay and Oral-B brands rose 5.6%.
Overall, the S&P 500 fell 93.74 points to 7,663.43. The Dow Jones Industrial Average gained 11.89, to 52,867.98, and the Nasdaq composite fell 694.00, to 26,008.86.
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