Wall Street slides as AI bubble fears hit tech stocks

REUTERS/JEENAH MOON

Traders work on the floor at the New York Stock Exchange in New York City today. Wall Street’s major indexes closed lower today, and investors left technology for other sectors as Broadcom and Oracle fueled concerns about an AI bubble and rising U.S. Treasury yields added pressure after some policymakers spoke out against easing monetary policy.

Wall Street’s major indexes closed lower today, and investors left technology for other sectors as Broadcom and Oracle fueled concerns about an AI bubble and rising U.S. Treasury yields added pressure after some policymakers spoke out against easing monetary policy.

Treasury yields rose after a group of Federal Reserve officials who voted against the central bank’s interest rate cut this week voiced worries that inflation remains too high to warrant lower borrowing costs.

Broadcom shares tumbled after the chipmaker warned of slimmer future margins, causing renewed concerns about the profitability of surging AI investments. This was after a nearly 11% sell-off in Oracle on Thursday following the cloud software company’s weak financial forecast. Oracle shares added to losses today even after it denied a Bloomberg report that its data centers for ChatGPT maker OpenAI were being delayed.

It didn’t help that the S&P 500 and the Dow had notched record closing highs on Thursday and that investors were looking ahead to important labor market and inflation data due out in the week ahead, according to Anthony Saglimbene, chief market strategist at Ameriprise.

“It’s not surprising that the market’s selling off today after a pretty solid couple weeks,” said Saglimbene, adding that following record closes, and with “some disruption in the AI theme right now, investors today are looking at some of the more defensive sectors.”

The Labor Department’s reports on nonfarm payrolls, consumer inflation and retail sales data are due next week and may offer greater insight into the economy’s health after the October government shutdown starved investors and policymakers of official data releases.

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“The market is probably a little bit cautious on heading into those big numbers next week,” said the strategist.

According to preliminary data, the S&P 500 lost 73.62 points, or 1.06%, to end at 6,827.38 points, while the Nasdaq Composite lost 398.69 points, or 1.69%, to 23,193.65. The Dow Jones Industrial Average fell 242.02 points, or 0.50%, to 48,461.99.

Stocks in the broader chip market were under pressure, with the Philadelphia semiconductor index falling sharply. And along with Broadcom, heavyweight AI leader Nvidia was a major drag on the S&P 500.

Other companies that have benefited from AI bets but went into reverse today included SanDisk and infrastructure companies such as CoreWeave and Oklo .

Most of the 11 S&P 500 industry sectors declined, led by heavyweight tech stocks. Defensive consumer staples led the advancers during the session. On the bright side, Lululemon Athletica rallied sharply after the apparel maker raised its annual profit forecast and said that CEO Calvin McDonald was leaving the company. But Costco Wholesale shares lagged even after it beat Wall Street estimates for first-quarter revenue and profit as consumers snapped up affordable essentials and nice-to-have items at its stores ahead of the crucial holiday season.

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