Wall Street sinks as Nasdaq falls over 2% on AI cost worries

The tech-heavy Nasdaq slid more than 2 percent on Thursday as growth stocks weakened after earnings from mega-caps Tesla and Meta did little to address AI-related concerns, with a recovery in oil prices further adding to market unease.

Meta slipped 5.2 percent after the social media giant unveiled a new class of non-voting shares to help fund its costly AI expansion. The decline came despite stronger-than-expected quarterly revenue and an upbeat fourth-quarter sales forecast.

The market weakness marked a sharp reversal from Wednesday, when robust results from SpaceX and Super Micro sparked an AI-fueled rally. The optimism faded as investors shifted their focus from earnings strength to the enormous capital required to build AI infrastructure and their uncertain return timeline.

The selloff put the Philadelphia SE Semiconductor Index on track to shed more than $616 billion in market value, while the Nasdaq-100 was set to erase nearly $1 trillion. The semiconductor index fell 5.6 percent to its lowest since July 29.

“Semiconductors and the Nasdaq have been elevated to a huge degree by investors’ rush to participate in the AI build-out. Investors are now reassessing the pace of AI spending and the returns that spending can generate,” said Steve Sosnick, chief market analyst at Interactive Brokers.

Tesla fell 0.7 percent after the electric-vehicle maker cut annual capital expenditure forecast, raising questions about the pace of its AI and robotics ambitions.

Other constituents of the ‘Magnificent 7’ group also declined, with Amazon.com and Nvidia down more than 3 percent each.

At 11:58 a.m. ET, the Dow Jones Industrial Average fell 29.18 points, or 0.06 percent, to 52,826.91. The S&P 500 lost 85.27 points, or 1.10 percent, to 7,671.90, while the Nasdaq Composite slipped 551.50 points, or 2.06 percent, to 26,152.90.

Six of the 11 S&P 500 sectors posted losses, led by technology, down more than 2.7 percent.

Consumer staples were leading the gains with a 2.5 percent rise. Procter & Gamble jumped 6.1 percent to a near eight-month high after the consumer goods giant beat first-quarter estimates.

The S&P 500 value index was flat compared to a 2.2 percent drop in its growth counterpart.

Brent crude was hovering near its five-month high, after more Houthi attacks in Saudi Arabia stoked fears of supply disruptions and a wider Middle East conflict.

A flight to safety pushed the 10-year yield down to around 5.0025 percent.

Meanwhile, weekly jobless claims unexpectedly fell, pointing to a resilient labor market and supporting expectations that the Federal Reserve will keep interest rates unchanged at its meeting next week.

On the earnings front, S&P 500 third-quarter profit growth is forecast at 32.3 percent, up from 30.7 percent previously, according to LSEG data.

Blackstone gained nearly 6 percent after the alternative asset manager beat third-quarter profit expectations, while Chief Operating Officer Jon Gray said widening credit spreads on AI-linked debt could create opportunities to secure higher returns.

Lockheed Martin climbed 5.9 percent after the defense contractor raised annual sales and profit forecast.

Spotify rose 9 percent after the Swedish music streaming firm forecast fourth-quarter profit above Wall Street estimates, betting on its AI-powered features to drive user growth.

Declining issues outnumbered advancers by a 1.06-to-1 ratio on the NYSE and by 1.23-to-1 on the Nasdaq.

The S&P 500 posted 35 new 52-week highs and three new lows, while the Nasdaq Composite recorded 70 new highs and 247 new lows.