Nasdaq plunges, Wall Street’s fear gauge jumps 15% as investors flee tech

Wall Street’s fear gauge jumped on Thursday as concerns about the AI trade resurfaced. Tech stocks suffered their steepest selloff since June, with the Nasdaq Composite plunging 2.6%.

The Cboe Volatility Index, known as the VIX or Wall Street’s fear gauge, rose 15.3% to 19.2 in afternoon trading. A reading of 20 is considered a psychologically important threshold signaling elevated volatility. The VIX had been trading at historically low levels in recent months as stocks continued to build on their gains for the year. Now, however, investors are again questioning the sustainability of companies’ aggressive AI spending, which has been fueling economic growth and expectations of strong future returns, MarketWatch notes.

The S&P 500 closed down 1.25% on Thursday. The blue-chip Dow Jones Industrial Average managed to turn positive by the end of the session, eking out a gain of 0.02%.

Chipmakers had a particularly rough day, with the Philadelphia Semiconductor Index tumbling 6.7%. Its three largest constituents, Nvidia, Advanced Micro Devices, and Intel, fell 4.4%, 8.0%, and 6.3%, respectively. The decline left the index more than 26% below its record closing high on June 22.

“It’s a wonderful day on Wall Street,” Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest, told Reuters. “The only part of the market that is really suffering here is technology, which has been the golden child of the markets up until about June.” Investors are beginning to see weaknesses in the AI story, weighing on indexes because of their heavy tech weightings, Nolte believes.

“People are running away from tech,” Nationwide chief market strategist Mark Hackett said in an interview with MarketWatch. There was “a very different tone” in the market on Thursday toward AI spending following Meta Platforms’ third-quarter earnings report, he said. Meta stock came under heavy pressure despite strong results, with investors concerned that its free cash flow had turned negative after all its AI spending, Hackett noted. That happened for the first time in more than a decade, according to Reuters. Meta stock plunged 7% on Thursday.

Tesla stock fell 3% after the company also reported quarterly earnings the previous day. The management cut this year’s capex forecast by $5 billion, raising investor concerns that the company’s ambitious projects could face delays.

Six of the Magnificent Seven stocks consequently lost market value on the day. The Roundhill Magnificent Seven ETF fell 3.35%. Apple was the only member of the group to finish Thursday higher. Its stock has emerged as a safe haven amid concerns about AI spending because the iPhone maker is not pouring billions of dollars into developing its own AI, Bloomberg explains.

Many investors appeared to seek shelter from the tech selloff in U.S. Treasuries, whose yields fall as strong demand pushes prices higher, MarketWatch writes. The 10-year Treasury yield tumbled 19.3 basis points to 4.952% on Thursday, its biggest one-day decline since March 2023, according to Dow Jones Market Data. The flight to safety outweighed concerns that rising energy prices could fuel inflation, Bloomberg notes. Traders are no longer treating a Fed rate hike by year end as a virtual certainty, Bloomberg added.