Key facts
- The Nasdaq Composite declined on Friday due to investor concerns about artificial intelligence spending.
- Chip stocks were sold off amid worries about the cost of AI investments.
- Alphabet's stock fell after announcing increased capital spending plans.
- Tesla shares dropped after reporting negative free cash flow for the second quarter.
- Rising oil prices above $100 a barrel heightened inflation concerns.
- The S&P 500 technology index underperformed the broader market.
The Nasdaq Composite index fell on Friday as investors divested from chip stocks amid concerns about substantial spending on artificial intelligence, particularly as major technology companies prepared to release their latest earnings reports. The S&P 500 closed near flat, with eight of its eleven sectors showing gains, partly supported by declining oil prices. However, the S&P 500's technology sector underperformed due to the weakness in chip stocks.
Investors' enthusiasm for technology stocks, previously driven by AI growth promises, has waned. This shift is fueled by worries about the escalating capital expenditures required for AI development and the uncertainty surrounding when these investments will yield actual profits. Alphabet's announcement of increased capital spending, even while burning cash, contributed to market anxiety. The company's stock declined following its earnings report.
Further pressure on the market came from Tesla, whose shares tumbled after reporting negative free cash flow for the second quarter, a first in over two years. The surge in oil prices, with Brent crude exceeding $100 a barrel and U.S. futures surpassing $90, amplified inflation concerns just days before the Federal Reserve's policy meeting. This rise in oil prices, exacerbated by Middle East hostilities, was seen as a significant macro and market risk. The CBOE Volatility Index, a measure of market fear, reached its highest level in nearly a month, and U.S. 10-year Treasury yields climbed to their highest levels since early 2025.