I'm LongbridgeAI, I can summarize articles.Amid concerns over massive AI investments, US chip stocks faced a sell-off. The Philadelphia Semiconductor Index plunged 6.7%, marking its largest single-day drop since June, while the Nasdaq Composite fell 2.6%. Despite better-than-expected earnings from some companies, market worries about AI financing needs and return on investment evidence led to widespread declines of over 8% in chip stocks like Intel and AMD, as capital rotated into government bonds for safety
US chip stocks were sold off on Thursday, with the Philadelphia Semiconductor Index plunging 6.7%, its largest single-day drop since June 23. Intel, AMD, SanDisk, and Marvell all fell more than 8%. Meta's plan to increase AI spending reignited market concerns about massive investment and financing needs, dragging the Nasdaq Composite down 2.6% as funds moved into government bonds for safe haven.
The Dow Jones Industrial Average rose 11.89 points, or 0.02%, to close at 52,867.98. The S&P 500 Index fell 93.74 points, or 1.2%, to 7,663.43. The Nasdaq Composite Index dropped 694 points, or 2.6%, to 26,008.86, marking its largest single-day decline since June.
The Philadelphia Semiconductor Index plummeted 6.7%, falling more than 26% from its historic closing high on June 22, but it is still up 51.5% year-to-date, outperforming the S&P 500's 11.9% gain over the same period. Taiwan Semiconductor ADR fell sharply by 4.5%, a smaller decline than the SOX index.
Chip Stocks Broadly Slammed; Strong Earnings Cannot Escape Selling Pressure
Semiconductor manufacturing equipment maker Lam Research plunged 11.8%. Despite revenue and adjusted profits exceeding analyst estimates, the stock was heavily punished, indicating that market expectations for AI-related companies are extremely high.
In addition to Intel, AMD, SanDisk, and Marvell plunging more than 8%, NVIDIA, Micron Tech, SpaceX, and CoreWeave also declined, with the AI supply chain broadly facing sell-offs.
NVIDIA CEO Jensen Huang stated that the industry lacks sufficient capital to support the growth of new cloud providers, further deepening market concerns about AI financing. These providers offer digital infrastructure services to hyperscale data center operators like Meta and Amazon.
Paul Nolte, Senior Wealth Advisor and Market Strategist at Murphy & Sylvest, said that investors are beginning to find holes in the AI growth narrative, and since technology stocks have a high weighting in major indices, they are being dragged down.
James McCann of Edward Jones pointed out that after the previous surge in technology stocks, investors are now demanding more evidence of returns on AI investments and are worried about whether massive spending can be sustained amid persistently high interest rates.
Meta Drops 7% on Increased Spending; Tesla Also Closes Lower Amid Reduced Investment
Meta plummeted 7%. Although the company's third-quarter revenue hit a record high, it disclosed future spending commitments totaling billions of dollars and planned to create a new class of non-voting shares to raise capital for AI investments. The massive AI spending also resulted in the company's first net cash outflow in over a decade.
Investor and analyst Louis Navellier said, "It all comes back to Meta." He believes that the market is now selling off other stocks along with Meta, akin to "throwing the baby out with the bathwater."
Tesla fell 3.1%. Although the company's free cash flow for the previous quarter was unexpectedly positive, it lowered its full-year capital expenditure forecast to approximately $20 billion, down from the previous estimate of over $25 billion. Musk did not further discuss the idea of merging with SpaceX during the analyst conference call.
Alphabet, Microsoft, and Amazon, which are scheduled to report earnings next week, are also heavily investing in data center construction, and their spending scales and returns on investment will be under scrutiny.
However, Blackstone President Jon Gray does not believe the AI boom will turn into a bubble. He said that a bubble involves building capacity first and then hoping for demand to appear; in contrast, AI involves expanding capacity while worrying about failing to keep up with demand. This contrasts with the view of hedge fund magnate Griffin, who recently stated that the AI industry is "almost certainly" heading toward a bubble.
Blackstone's stock rose 8.4%. The company believes that widening credit spreads on AI-related debt may provide opportunities to lock in higher returns.
Capital Rotates into Government Bonds; Oil Prices Rise to Five-Month High
Volatility in technology stocks combined with heightened risks in the Middle East drove capital into government bonds, with safe-haven buying outweighing inflation concerns triggered by rising energy prices.
The yield on the US 2-year Treasury note fell 18.8 basis points to 4.635%, marking its largest single-day drop in over a year. The 10-year yield fell below 5% for the first time in a month, with its single-day decline being the largest in over two years. The 30-year yield dropped 15.1 basis points to 5.286%.
Initial jobless claims decreased, indicating that the labor market remains stable. However, amid the stock market decline and tightening financial conditions, the market has also reduced bets on further rate hikes. According to Bloomberg, money markets no longer fully reflect the expectation of one rate hike by the Federal Reserve before the end of the year.
Brent crude oil surged 4% to close at $113.17 per barrel, its highest closing price since May. Renewed attacks on Saudi Arabia, coupled with reports that the US and Israel are replanning attacks on Iran, pushed up supply concerns.
Gold fell approximately 2.1% to $4,042.80 per ounce. Silver dropped 4.6% to a new low for the year. Bitcoin followed technology stocks lower, falling 3.8% to $81,395, breaking below the key support level of $82,500.
Procter & Gamble and Spotify Buck the Trend with Gains
The market did not fall across the board. Although Procter & Gamble warned that cost pressures would erode profits, its performance exceeded expectations, and its stock rose 5.6%. Spotify rose 11.1%, benefiting from better-than-expected growth in paid subscribers and a strong profit outlook for the fourth quarter.
Lockheed Martin raised its full-year sales and profit forecasts and announced a ten-year fighter jet supply agreement with the Pentagon, sending its stock up 7%. Union Pacific rose 3.6% on better-than-expected earnings; Comcast rose 3.4%, American Airlines rose 3%, and IBM edged up 0.3%.
Moderna plunged 18% after cancer vaccine trial data leaked early on social media, with results falling short of market expectations.
According to LSEG data, 111 S&P 500 companies have currently reported their third-quarter earnings, with 83% outperforming analyst expectations.