The Nasdaq Composite Index experienced a significant decline on Friday, falling over 830 points, or approximately 3.2%, during midday trading. This drop follows disappointing earnings reports from major companies like Alphabet, Amazon, and Intel, sparking renewed apprehensions regarding the future of artificial intelligence (AI).
Intel’s stock took a severe hit, plummeting by more than 30%, while shares of Alphabet, Google’s parent company, continued to struggle. Following a rough day on Thursday that saw its Class A stock drop over 12%, Alphabet ended up losing about $500 billion in market value.
Amazon also faced setbacks, with its stock declining 2.2% after revealing profits that fell short of expectations. Meanwhile, shares of Reddit and Roblox saw substantial losses, with decreases of 30% and 20%, respectively.
Market analyst Adam Crisafulli, who leads Vital Knowledge, noted that this has been one of the most challenging earnings seasons for the tech sector in a long time, with disappointing results from many leading firms.
In afternoon trading, the S&P 500 and Dow Jones Industrial Average also fell, losing 1.9% and 0.9%, respectively.
The underwhelming earnings have raised concerns among investors about whether the significant investments in AI will yield the anticipated returns. Additionally, there are worries regarding the debt that companies are incurring to fund their data center expansions and if that debt is manageable.
According to Adam Turnquist, chief strategist at LPL Financial, large-cap stocks have faced growing selling pressure recently due to rising AI-related spending and higher financing costs, which have created doubts about their profitability. He suggested that recent earnings reports highlighted slow growth in some of the largest tech firms.
Investors have been relying on the rapid growth of AI, which has previously driven the stock market to all-time highs. However, this optimistic viewpoint is now facing challenges. Earlier this week, Ulrike Hoffmann-Burchardi, a leading investment officer at UBS, recommended that clients diversify their investments beyond AI. She emphasized the importance of having a well-rounded equity portfolio in light of the high expectations and varying company performances in the AI sector.
Additionally, cryptocurrency markets faced their own troubles as hackers, reportedly linked to North Korea, stole over $6 billion from Binance, the largest crypto exchange. As a result, the price of bitcoin fell significantly, dropping to around $77,000, down from over $86,000 earlier this month.
