Nasdaq drops 2.6% as investors question AI spending surge
Tech-heavy index posts its steepest one-day fall since June, with the Magnificent 7 selling off and rising oil prices adding to the gloom.
At a glance
- The Nasdaq Composite fell 2.6% on Thursday, its steepest one-day drop since June 5.
- Meta fell nearly 7% after raising projected capital spending for the year to $135bn-$145bn.
- Brent crude rose above $114.20 a barrel and major Asian markets opened lower on Friday.
US technology stocks fell sharply on Thursday, with the Nasdaq Composite dropping 2.6 percent in its steepest one-day decline since June 5, as investors questioned whether companies' massive spending on artificial intelligence can be sustained.
The broader S&P 500 slid 1.21 percent, its biggest drop since July 29. Every member of the "Magnificent 7" group of major tech firms fell except Apple. The group accounts for more than one-third of the overall market.
Meta leads the decline
Meta dropped nearly 7 percent after raising its projected capital spending for the year to between $135bn and $145bn in its latest earnings report, while net profit came in below expectations.
Amazon fell 4.6 percent and Nvidia 4.4 percent. Tesla and Alphabet each lost 3.1 percent, and Microsoft slipped 2.2 percent.
The selling spread to other large tech names: Intel and Advanced Micro Devices both fell about 8 percent, while Broadcom slid 4.3 percent.
After the losses, the Nasdaq sits about 5.8 percent below the record high it reached on October 6.
Oil prices and Asia
Rising oil prices added to the downbeat mood. Brent crude futures rose 4 percent on Thursday and kept climbing on Friday morning, pushing the international benchmark above $114.20 a barrel — its highest level since May. The increase follows the fallout of the US-Israel war on Iran.
Major Asian markets opened lower on Friday. Japan's Nikkei 225 fell more than 2 percent in morning trading before recovering some ground, South Korea's KOSPI dropped as much as 3.5 percent and Hong Kong's Hang Seng Index fell about 0.5 percent.
Sentiment versus fundamentals
Jay Goldberg, a senior analyst at Seaport Research Partners in San Francisco, told Al Jazeera the swings appeared to be driven more by sentiment than underlying fundamentals.
"There are legitimate concerns about the AI trade, but this level of shift in the markets is driven much more by investor sentiment than any tangible reason," he said.
The scale of US tech companies' AI investment has fuelled intense debate over whether a market bubble is forming similar to the one that preceded the 2000 dot-com crash. Some Wall Street analysts view current spending on data centres and graphics processing units as unsustainable, while others argue that AI will transform society enough to justify the sums involved.
Technology insights company Gartner forecasts global AI investment of $2.7 trillion in 2026 and $3.6 trillion in 2027.
Source: Al Jazeera.
Questions and answers
- Why did US tech stocks fall?
- Investors are worried about whether the huge capital spending by tech companies on AI is sustainable. Meta's raised spending forecast and weaker-than-expected profit added to those concerns, along with rising oil prices.
- How much did the Nasdaq and S&P 500 fall?
- The Nasdaq Composite dropped 2.6 percent, its steepest fall since June 5, while the S&P 500 slid 1.21 percent, its biggest decline since July 29.
- Is AI a bubble?
- The report describes intense debate rather than a conclusion. Some Wall Street analysts see current investment in data centres and graphics processing units as unsustainable, while others argue AI will revolutionise society enough to justify the sums.
