Bullish ‘tone reversed overnight’: Nasdaq drops 2.8%, heads for worst day since June
The tech-heavy Nasdaq Composite slid almost 2.8% on Thursday / Photo: X / NYSE
Tech stocks extended their losses in Thursday trading amid renewed concerns about a slowdown in spending by AI companies. The tech-heavy Nasdaq Composite plunged almost 2.8%, which put it on track for its biggest one-day drop since early June. The broad-market S&P 500 lost 1.5%, while the blue-chip Dow Jones Industrial Average slipped 0.2%.
Investors are in a mood to punish companies for any missteps, Barron’s notes. Here is how Wall Street analysts view the selloff.
After an upbeat Wednesday, the bullish “tone reversed overnight,” JPMorgan traders noted. Meta stock fell 7.5% despite rallying in after-hours trading following strong earnings. There was also increased chatter “over renewed Iran kinetic-risk post U.S. midterm election.” In addition, “underlying price actions and feedback from our trading desk also suggested the still fragile narrative around AI financing concerns and the lack of conviction/re-grossing from the recent tech reversal,” the traders wrote in a note quoted by CNBC.
“Following an extraordinary run in technology stocks, markets are becoming more demanding around evidence of the payoff from high investment in AI and concerned about the sustainability of this spending amid higher interest rates,” James McCann, senior economist at Edward Jones, said, as quoted by Business Insider. He remains upbeat on large-cap stocks but cautioned that investors should ensure their portfolios are well diversified, Bloomberg reports.
Following its quarterly earnings report, Tesla’s management cut its capex forecast for this year from $25 billion to $20 billion, while Meta’s capex guidance was largely unchanged. Investors fear that greater “spending discipline” could signal a slowdown in the AI investment boom, with negative consequences throughout the supply chain, economist David Rosenberg told Business Insider.
Nvidia CEO Jensen Huang’s comments that a shortage of capital is holding back cloud infrastructure providers such as CoreWeave are “spooking markets and reigniting the concerns around the capital markets on the credit side being full from a risk appetite standpoint,” Wells Fargo traders wrote in a note referenced by CNBC. Meta’s comments about the large amount of funding needed for AI also caused its stock to reverse course and weighed on the broader market, they said.
"If the AI payoff is slow to materialize or never arrives, venture capital returns would come under pressure, since the capital funding today’s token spending would have little to show for it, and a pullback in venture funding could in turn weaken demand for compute,” Apollo chief economist Torsten Slok warned in a note cited by Bloomberg.
