Key facts
- The stock market experienced a sharp decline on Thursday, with the S&P 500 down 1.2% and the Nasdaq 100 down nearly 2%.
- The sell-off was driven by a confluence of rising oil prices due to renewed US-Iran tensions and investor concerns over high capital expenditure by AI-focused tech companies.
- Alphabet shares fell 7% and Tesla shares dropped 15% following their respective earnings reports, which highlighted increased spending.
- The Magnificent 7 group of large-cap tech stocks collectively declined by 4%.
The stock market faced a significant downturn as two major market drivers — the ongoing geopolitical tensions involving Iran and investor sentiment towards the AI trade — converged. On Thursday, the S&P 500 closed down 1.2%, and the tech-heavy Nasdaq 100 fell nearly 2%, with the Magnificent 7 group of large-cap tech stocks collectively dropping 4%.
The surge in crude oil prices back above $100, fueled by renewed conflict involving the US and Iran, has reignited inflation expectations. This development has led investors to anticipate potential interest rate hikes, a historically detrimental factor for stock performance.
Simultaneously, investor patience with the substantial capital expenditure required for the AI trade appears to be waning. Alphabet shares declined 7% after raising its spending forecast, despite strong earnings and growth in its AI-focused Google Cloud business. Tesla's stock fell 15% after it pledged further spending and missed profit estimates.
Upcoming earnings reports from other major tech companies like Meta, Microsoft, and Amazon are now under scrutiny, with a focus on their capital expenditure plans potentially overshadowing reported financial results.