Nasdaq Plunges Over 750 Points as Wall Street Questions Massive AI Spending
Nasdaq drops 751 points as investors worry about artificial intelligence infrastructure costs, tighter credit markets, and rising oil prices.
POLICY WIRE — New York, United States — Equity markets experienced a steep downturn on Thursday, driven by growing investor anxiety over whether astronomical capital outlays for artificial intelligence will generate adequate returns alongside escalating crude prices.
Near the end of Thursday’s trading session, the technology-heavy Nasdaq Composite Index dropped 751 points, marking a 2.8% decline. Meanwhile, the broader S&P 500 retreated 1.4%, and the blue-chip Dow Jones Industrial Average dipped 0.1%.
Wall Street analysts note that market participants are growing increasingly anxious regarding the substantial debt loads technology firms are accumulating to fund data center construction. Questions remain over whether these enterprises will ultimately secure the profitability that shareholders expect.
Adam Crisafulli, head of Vital Knowledge, detailed these pressures in a Thursday research note to investors by stating that AI growth is dependent on capex (this is one of the most capital-intensive industries ever), and since capex is dramatically outpacing op. cash flow, companies are reliant on the largess of equity and debt investors to underwrite all the spending, but lately those markets are becoming increasingly less accommodating.
Crisafulli further cautioned that a tightening credit environment leading to slowing debt issuance could restrict the capacity of corporations to fund the ongoing expansion of AI infrastructure.
Projections from the nonpartisan think tank The Brookings Institution indicate that building out necessary AI infrastructure between 2025 and 2032 will require upwards of $10 trillion. Carl Weinberg, chief economist at High Frequency Economics, observed that this initiative represents the largest wave of investment in American history, easily eclipsing 19th-century railroad construction and the dot-com boom.
Even though numerous major corporations steering the artificial intelligence surge continue to generate robust profits, shareholders are carefully evaluating these towering expenses as valuations climb.
Thursday’s market pullback arrived alongside a wave of mixed corporate earnings releases. Meta Platforms saw its shares slide 7.4% after reporting revenue that beat expectations while profits missed projections. Simultaneously, Tesla shares fell 2.1% after the electric vehicle manufacturer posted better-than-anticipated summer profits paired with revenue that fell short of analyst forecasts.
Stocks also faced headwinds on Thursday from climbing oil prices, which were spurred by fears of worsening conflict in Iran. U.S. benchmark West Texas Intermediate rose 2.4% to trade at $99.44 a barrel, while international standard Brent crude advanced 3.9% to reach $113 a barrel.
Reporting by Policy-Wire (PW)
