Wall Street tumbles to its worst day since June after the sell-off for tech stocks deepens - Sentinel Colorado

NEW YORK | Wall Street experienced a significant downturn on Friday, primarily driven by concerns that the recent surge in artificial intelligence (AI) investments had inflated tech stock prices beyond sustainable levels. The S&P 500 index fell by 1.8%, marking its most substantial decline since June. The Nasdaq composite index saw a more considerable drop of 2.9%, while the Dow Jones Industrial Average slipped by 1.1%. Intel's shares plummeted nearly 29%, representing its worst performance since 1974, following a profit forecast that disappointed analysts. Amazon's profit report further fueled apprehensions regarding corporate spending on AI initiatives. In response to these market conditions, Treasury yields decreased as investors sought safer assets, even as oil prices increased.

As of Friday, the tech stock sell-off intensified, raising alarms about the sustainability of the enthusiasm surrounding AI technology on Wall Street. The S&P 500 was down 2.3% at one point, edging toward its worst day since June and marking a potential third consecutive week of losses. The Nasdaq composite was particularly hard-hit, declining by 3.5%, while the Dow Jones Industrial Average dropped by 723 points, or 1.4%, as of 3:05 p.m. Eastern Time.

Despite the recent downturn, the U.S. stock market remains just 3.4% shy of its all-time high, which has positively impacted the value of workers' 401(k) accounts. However, uncertainty looms as the midterm elections approach, with AI concerns becoming a bipartisan issue among voters. Historically, former President Donald Trump has pointed to the stock market's performance as a measure of his administration's success.

Intel's stock led the declines, approaching its worst single-day drop in history, which dates back to 1972, after falling by 30.7%. The chipmaker issued a profit forecast for the final quarter of the year that fell short of analysts' expectations, with CEO Lip-Bu Tan noting ongoing pressures in the personal computer sector. This significant drop occurred despite Intel reporting a stronger-than-expected profit for the most recent quarter.

Amazon's shares fell by 1.9% after the company reported weaker-than-anticipated summer profits. Investors were particularly alarmed by the revelation that Amazon had burned through $42.4 billion in cash over the past year, as measured by free cash flow. The company invested $94.8 billion in property and equipment, mainly focusing on AI technologies.

Earlier in the week, Alphabet, the parent company of Google and YouTube, saw its stock decline by more than 12%, marking its worst day on record. The company attributed its losses to increased cash burn during the summer months compared to the spring, citing extensive investments in AI.

Concerns are mounting regarding whether the substantial capital invested in AI will yield sufficient profits and productivity to justify the expenditures. Additionally, stocks of companies involved in semiconductor manufacturing and other beneficiaries of the AI data center boom have faced pressure due to fears that elevated interest rates may hinder the expansion of data centers.

"We’re moving out of the hopes and dreams phase of the AI trade and into the ‘show me’ phase," remarked Joe Tigay, a portfolio manager at Equity Armor Investments, in a communication to investors.

Nvidia, a leading chipmaker often associated with the AI boom, saw its stock price decrease by 4.9%, contributing significantly to the downward movement of the S&P 500, even more so than Intel.

In the cryptocurrency sector, stocks plunged following a hack affecting Binance, the world's largest crypto exchange. The price of Bitcoin dropped below $77,000, down from over $86,000 earlier this month. A U.S.-based blockchain intelligence firm suggested that a North Korean entity was likely responsible for the attack, which impacted over $6 billion worth of cryptocurrency on Binance. Coinbase Global's shares fell by 13.6%, despite reporting better-than-expected quarterly results. Strategy, which claims to own about 4% of the total Bitcoin supply, saw its stock decline by 8.3% as it also reported stronger-than-expected profits while announcing the resignation of its chief financial officer for personal reasons.

Outside the tech sector, stocks showed more resilience, with many companies posting stronger-than-expected summer profits. ExxonMobil's shares increased by 1.8%, and Chevron's rose by 1.7% after both oil giants reported better-than-anticipated earnings. Mondelez International, known for its Oreo cookies and Ritz crackers, saw a 4% increase in its stock price after reporting robust growth. Colgate-Palmolive's shares rose by 2.9%, buoyed by higher prices for its products worldwide, leading to better-than-expected revenue and profits.

Despite global concerns regarding inflation and high fuel prices, expectations remain high for U.S. companies' profit potential, which contributed to the S&P 500 reaching record levels earlier this month. In the bond market, Treasury yields declined, indicating that investors were seeking the safety of U.S. government bonds. The yield on the 10-year Treasury note fell to 4.93%, down from 4.98% late Thursday and from over 5.30% earlier this month. This decline in yields occurred even as oil prices rose, with Brent crude oil increasing by 2.4% to $113.43, remaining near the upper range since the conflict with Iran escalated prices and inflation.

Internationally, stock markets displayed mixed results, with European indexes showing varied performance following volatile trading sessions in Asia. South Korea's Kospi index dropped by 3.5%, impacted by concerns over AI, while Hong Kong's Hang Seng index rose by 1.5%. Japan's Nikkei 225 index fell by 2.1% after the Bank of Japan maintained its interest rates, echoing similar decisions made by the Federal Reserve and the European Central Bank earlier in the week.