The selloff in AI-related equities was triggered by concerns over the high cost of borrowing for data center construction and chip acquisitions, coupled with fears that valuations had become excessive. Lam Research, which reported profit and revenue gains slightly above analyst expectations, saw its stock plunge 11.8% after indicating a profit forecast midpoint below consensus. Meta Platforms fell 7% despite stronger-than-expected revenue, citing a profit shortfall and plans to issue new stock to fund AI investments. Tesla dropped 3.1% following a report showing stronger profits but weaker revenue than forecast. Nvidia, the largest company in the S&P 500 by market value, declined 4.4%, exerting the strongest downward pull on the broad index. CoreWeave, which relies on debt to purchase Nvidia chips for cloud rental, dropped 10.1% amid ongoing concerns about its leverage.
The market weakness spread from Asia, where tech-heavy indexes also fell. South Korea’s Kospi index tumbled 3.5%, Japan’s Nikkei 225 sank 2.7%, and Hong Kong’s Hang Seng dropped 3%. In Europe, France’s CAC 40 index fell 1.4%, its sharpest loss recently, weighed down by rising yields on French government bonds due to debt concerns and political unrest. Oil prices also pressured global sentiment, with Brent crude leaping 4% to $113.17 per barrel, its highest level in five months. The price surge stems from uncertainty regarding the war with Iran and its impact on global energy supply, with Brent having risen from below $97 at the start of the month.
Despite the equity selloff, U.S. Treasury yields dropped significantly, signaling a flight to safety. The yield on the 10-year Treasury fell to 4.97% from 5.13% late Wednesday, a sharp decline from above 5.30% earlier in the month. This move occurred even as new data showed fewer U.S. workers applying for unemployment benefits, suggesting the labor market remains resilient. Two-thirds of stocks in the S&P 500 actually rose on Thursday, with non-tech firms like Procter & Gamble, Lockheed Martin, and CSX outperforming after beating profit expectations. Procter & Gamble stock rose 5.6% as CEO Shailesh Jejurikar reaffirmed full-year growth forecasts despite geopolitical challenges.
Investors are now watching for further clarity on the Iran conflict’s impact on energy markets and subsequent inflationary pressures. The next key data release will likely offer further insight into the U.S. labor market’s pace, while bond yields remain a critical indicator of monetary policy expectations in the face of high government debt and persistent inflation concerns.
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