S&P 500 and Nasdaq Slide as AI Spending Concerns Trigger Tech Selloff

US stocks tumbled on Thursday, with the Nasdaq posting its steepest daily drop since early June as a wave of high-profile corporate earnings reports ignited fresh doubts about the artificial intelligence spending race. The S&P 500 ended deep in negative territory, losing 93.74 points, or 1.21 percent, to finish at 7,663.43. Meanwhile, the tech-heavy Nasdaq Composite dropped 694.00 points, or 2.60 percent, to close at 26,008.86. The blue-chip Dow Jones Industrial Average managed a nominal gain of 11.89 points, closing nearly flat at 52,867.98.

The sharp market downturn was heavily driven by major technology companies reporting earnings that highlighted massive capital outlays for artificial intelligence infrastructure. Meta Platforms surpassed analyst expectations for quarterly revenue, but its stock slid 7.0 percent after the Facebook parent posted its first cash outflow in over a decade due to AI-related expenditures. Meta also announced plans to issue non-voting shares in a two-for-one split to raise capital for the nascent technology. Tesla shares fell 3.1 percent even though the electric vehicle maker unexpectedly posted positive free cash flow and cut its capital spending plans for 2026.

Semiconductor stocks, which have fueled much of the current bull market's gains, suffered the heaviest losses. The Philadelphia SE Semiconductor Index plummeted 6.7 percent, marking its largest daily percentage drop since June 23. Chipmakers including Intel, AMD, SanDisk, and Marvell all dropped more than 8 percent. Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest in Elmhurst, Illinois, noted that technology had been the golden child of the markets until recently, adding that investors are starting to realize there are some holes in the AI story that impact heavily weighted indices.

Broader market pressures also weighed on investor sentiment amid geopolitical tensions and macroeconomic concerns. Iran-backed Houthis launched fresh strikes against Saudi targets, driving crude oil prices to a five-month high. Investors worried that ongoing conflicts in the Middle East could keep inflation elevated and force the US Federal Reserve to continue raising interest rates. Meanwhile, Labour Department data showed that initial claims for unemployment benefits hovered near multi-decade lows, signaling labor market stability that leaves room for the central bank to maintain its focus on fighting inflation.

Despite the technology-led rout, certain sectors and individual companies found support from quarterly reports. Procter & Gamble shares rose 5.6 percent after beating analyst estimates despite warnings about rising cost pressures. Blackstone advanced 8.4 percent following comments that widening credit spreads on AI-related debt could create opportunities for higher returns, while Lockheed Martin climbed 7.0 percent after raising its annual sales and profit forecast. Spotify shares gained 11.1 percent on optimistic fourth-quarter profit guidance driven by AI-powered features.

Beyond recent trading sessions, broader market valuations have faced increasing scrutiny from financial analysts. The cyclically adjusted price-to-earnings, or CAPE, ratio for the S&P 500 has climbed above 40, a level previously sustained only during the height of the dot-com bubble in the late 1990s. Similarly, the Buffett indicator—which divides the total market capitalization of US stocks by the country's annual gross domestic product—has hovered around 237 percent. While these metrics suggest historical highs in market valuation, many analysts note that today's largest firms generate substantial cash flows and revenue compared to speculative internet companies of past eras.