Tech rout drives Wall Street lower as AI spending fears mount
Wall Street fell on Thursday as a technology sell-off and Middle East supply risks pushed investors into government bonds, with money markets no longer fully pricing in a Federal Reserve rate increase by the end of the year. The Nasdaq 100 recorded its worst session since June after chipmakers fell almost 7%, while the S&P 500 lost 1.2%.
The trigger was Meta Platforms' plan to raise capital spending, which revived concern that technology companies will issue more debt to fund the artificial-intelligence buildout. Alphabet, Microsoft and Amazon, three of the largest data-centre spenders, are due to report next week, in an earnings season expected to focus on runaway AI expenditure and companies' attempts to show a return on it.
The flight to safety produced the biggest jump in Treasuries in more than a year, outweighing worries about energy-driven inflation as an oil rally added to pressure on sentiment. Ian Lyngen of BMO Capital Markets said the correction in technology valuations had led investors to reconsider whether tighter financial conditions caused by the market could justify a less restrictive monetary policy path.
James McCann of Edward Jones said markets were becoming more demanding about evidence of a payoff from AI investment, and about the sustainability of that spending when rates are higher. "We remain constructive on large-cap stocks," he said, adding that investors should ensure their portfolios are well diversified.
Blackstone president Jon Gray told Bloomberg Television that investors need not fear an AI bubble, arguing that capacity is being built to meet demand rather than in hope of it. His remarks came days after Ken Griffin said he believed the industry was "almost certainly" heading towards a bubble. Chinese stocks meanwhile entered a bear market, having lost US$2.4 trillion since a May peak, and French bond stress deepened as spreads widened to a 15-year high.
