NEW YORK: US stocks tumbled on Thursday (Oct 22) and the Nasdaq posted its steepest daily drop since early June as a batch of high-profile earnings reports ignited fresh fears about the AI spending race.
The S&P 500 ended deep in negative territory. But the tech-laden Nasdaq, dragged down by microchips, suffered a steeper loss, falling 2.6 per cent in the wake of a spate of high-profile AI-related earnings results.
The blue-chip Dow eked out a nominal gain minutes before the closing bell.
Meta Platforms' results beat analyst expectations, but its stock slid 7.0 per cent as the Facebook parent posted its first cash outflow in more than a decade due to its AI-related expenditures and announced plans to issue non-voting shares in a two-for-one split to raise capital to spend on the nascent technology.
Tesla shares fell 3.1 per cent even though the electric car maker unexpectedly posted positive free cash flow in the quarter and cut its 2026 capital spending plans.
The Philadelphia SE Semiconductor Index .SOX, which has driven much of the current bull market's gains, plunged 6.7 per cent, its biggest daily percentage drop since June 23.
With Thursday's decline, the SOX is off more than 26 per cent from its record closing high reached on Jun 22, yet it remains up 51.5 per cent so far this year. The S&P 500 has risen 11.9 per cent over the same period.
"It's a wonderful day on Wall Street," said Paul Nolte, senior wealth adviser & market strategist at Murphy & Sylvest in Elmhurst, Illinois. "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 starting to realize that there are some holes in the AI story," Nolte added. "And that's having an impact on the indices because they're so heavily weighted toward technology."
On the geopolitical stage, Iran-backed Houthis launched new strikes against Saudi targets, sending crude prices to a five-month high. Investors worried that ongoing Middle East strife could keep inflation hot and force the US Federal Reserve to keep raising interest rates.
Data from the Labour Department showed initial claims for unemployment benefits kept drifting along near multi-decade lows. Signs of labor market stability will allow the Fed to focus on fighting inflation. Financial markets are currently pricing in the probability that the central bank will raise its policy rate by another 25 basis points before year-end.
The Dow Jones Industrial Average .DJI rose 11.89 points, or 0.02 per cent, to 52,867.98, the S&P 500 .SPX lost 93.74 points, or 1.21 per cent, to 7,663.43 and the Nasdaq Composite .IXIC lost 694.00 points, or 2.60 per cent, to 26,008.86.