Nasdaq 100 sinks 3.5% as AI spending doubts hit Wall Street
Wall Street's AI trade cracked on Friday, as the Nasdaq 100 fell 3.5% and briefly crossed into a technical correction, its sharpest one-day drop since June. The S&P 500 lost 1.8%, breaking below its 100-day moving average, while the Dow Jones Industrial Average slipped 1.1%.
The trigger was a realisation that the advertising, consumer and retail businesses funding roughly US$750 billion of AI spending this year are themselves slowing. "The revelation that these hyperscalers are seeing a slowdown in their core businesses means that the big payoff that everyone has been saying will come eventually is getting pushed even further down the road," said Matt Maley of Miller Tabak. Intel Corp fell the most in more than four decades after disappointing results.
The pressure is spreading beyond share prices. S&P Global Ratings took an early step towards potentially downgrading Meta Platforms' credit rating within two years, citing strain on its balance sheet from elevated AI spending. Apple reclaimed the title of the world's most valuable company from Nvidia as investors sought the perceived safety of the iPhone maker.
Ulrike Hoffmann-Burchardi of the UBS Chief Investment Office said AI demand remains robust but flagged a rising risk of "mid-cycle capital expenditures indigestion", adding that investors should build resilient portfolios with exposure beyond tech. Maley warned the bigger danger is that the rotation propping up the market disappears: "If the major averages begin to drop in a more compelling manner, it is very likely that investors will stop rotating into other sectors and start rotating into cash."
Crypto added to the risk-off mood. Bitcoin fell 2.5% to US$76,813.65 and Ether slipped 0.9% to US$2,236.76 after Binance disclosed a record hack, renewing questions about the security of customer assets. Oil rose 0.9% to US$102.94 a barrel on speculation the US may resume strikes against Iran, while spot gold fell 3.3% to US$3,886.81 an ounce.
