Wall Street stocks fell sharply on Friday as disappointing results from major technology companies raised fresh concerns about the money being poured into artificial intelligence (AI). The Nasdaq 100 dropped nearly 4%, bringing it close to correction territory, while the S&P 500 fell around 2%.
Intel suffered its biggest one-day fall in more than 40 years, dropping roughly 30% after its outlook missed market expectations. Amazon also slipped 2% as investors reacted to its higher spending plans, adding to concerns about the cost of building AI infrastructure.
The selloff has also raised questions about whether the huge investments in AI will deliver the returns that companies have promised. The Nasdaq 100 has lost more than $1.2 trillion in market value in October.
AI spending concerns weigh on technology stocks
Some of the biggest technology companies are facing questions about the strength of their main businesses, including advertising, consumer services and retail. These businesses have helped support the companies as they increase spending on AI.
Together, major US technology firms are expected to spend around $750 billion on AI this year. However, signs of slower growth in some of their core businesses have made investors more cautious about whether these investments will pay off.
Matt Maley of Miller Tabak said the latest results had raised questions about the returns investors could expect from AI spending.
{{/usCountry}}Matt Maley of Miller Tabak said the latest results had raised questions about the returns investors could expect from AI spending.
{{/usCountry}}“It raises the question as to whether the payout will be as big as they have been promising,” he said.
Maley also warned that investors could move their money out of stocks and into cash if the wider market continues to fall.
“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,” he said.
Also Read: Nasdaq futures fall as Alphabet's AI spending concerns weigh on tech stocks
Bitcoin falls as Binance hack adds to market worries
The weakness was not limited to technology stocks. Bitcoin dropped to around $77,000 after Binance disclosed a record-breaking hack, adding to concerns about the safety of cryptocurrency holdings.
Oil prices also moved higher amid worries that the US could resume strikes against Iran. US crude rose 2.2% to $104.23 a barrel, while gold fell 3.5% to $3,881.86 an ounce.
S&P 500, Dow Jones and other market movements
The wider US stock market also ended under pressure. The Dow Jones Industrial Average fell 1.1%, while the S&P 500 was down 2.1%. The MSCI World Index declined 1.7%.
Among currencies, the euro slipped 0.2% to $1.1153, while the Japanese yen gained 0.2% to 157.45 against the dollar.
Also Read: Alphabet stock plunges 13% after earnings, wiping out nearly $500 billion in market value
The yield on 10-year US Treasury notes remained nearly unchanged at 4.93%.
Ulrike Hoffmann-Burchardi of UBS Chief Investment Office said AI demand was still strong but warned that companies could face challenges after increasing their spending.
“We continue to see scope for equity gains overall and believe investors should focus on building a resilient portfolio that includes exposure beyond tech,” she said.
With inputs from Bloomberg