Nasdaq 100 plunges 4% on Friday, heads for worst month in more than a year and a half

The selloff in U.S. stocks intensified on Friday: with just over an hour left in the session, the tech-heavy Nasdaq 100 had plunged 4% to its lowest level in almost three months. The broader Nasdaq Composite was down as much as 3.8%. Both indexes were heading for their worst month in more than a year and a half, according to the Wall Street Journal and Bloomberg. Meanwhile, the broad-market S&P 500 was down 2.42% on the day, while the blue-chip Dow Jones Industrial Average had lost 1.43%.  

The sharp drop in tech stocks has fueled concern that the AI frenzy powering the bull market may be overblown, Bloomberg reports. The Cboe Volatility Index, also known as Wall Street’s “fear gauge,” jumped more than 24% on Friday, briefly topping 21 points. A reading above 20 is generally considered a sign of heightened market volatility.

Amazon shares plunged 7% in premarket trading on Friday after the company's third-quarter top and bottom lines missed analyst expectations, while its free cash flow over the last 12 months turned negative. The stock later pared its losses but was still down 2% at the time of this writing. Intel, whose revenue guidance fell short of market expectations, was heading for its biggest drop in more than 40 years, with the stock down more than 30%. BofA analysts downgraded the stock from “buy” to “neutral” following the financials. Among their reasons they said Intel had “not communicated enough traction with external foundry customers.”

Intel’s slide dragged chip stocks lower around the world, Reuters reports: Nvidia fell 5%, while AMD lost 12%. The Philadelphia Semiconductor Index plunged 8%. Shares of server maker Dell dropped almost 12%.

Should the losses hold through the close, Amazon and Intel will have shed almost $200 billion in combined market value, while the Nasdaq 100 will have lost just over $1 trillion in market capitalization on Friday, Reuters reports. The index would then be down more than $2 trillion for the month.

“We’re moving out of the hopes and dreams phase of the AI trade and into the ‘show me’ phase,” said Joe Tigay at Equity Armor Investments. “Full order books are great, but investors want to see who can actually deliver.”

Weakness in the tech giants’ core businesses is pushing the long-promised AI payoff even further down the road, reckons Matt Maley, chief market strategist at Miller Tabak. “It raises the question as to whether the payout will be as big as they have been promising,” he told Bloomberg. The biggest problem, in Maley’s view, is that the rotation that has supported U.S. stocks could easily disappear. “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. “This is especially true since they have been hearing about a bubble for over a year now.”

“Companies that are performing and meeting the very lofty expectations that have been set are doing well,” Oliver Pursche, senior vice president at Wealthspire Advisors, told Reuters. “Those that are falling short and seem to be missing the mark or not executing as expected are getting punished.”

The VIX is rising in “an uncomfortable way,” Fairlead Strategies founder Katie Stockton told MarketWatch. It has yet to reach an extreme, she said, but “it’s getting into that territory where you feel like it’s a shift.” She added that “Emotions are running really high,” while noting that most of the selling remained concentrated in tech and AI-related stocks.

“We see the market as clearly splitting along the dimension of AI and most everything else,” shared Kyle Schmidt, a strategist at NISA Investment Advisers.