Key facts
- Global stocks declined Friday due to investor anxiety over artificial intelligence spending.
- Futures for the S&P 500 and Nasdaq indicated significant drops at the U.S. trading open.
- Taiwan's Taiex index fell 6.5% after TSMC announced a $100 billion investment.
- The Philadelphia Semiconductor index is down 8.4% for the week and 19% from its June high.
- Rising oil prices and geopolitical tensions between the U.S. and Iran contributed to market concerns.
Global stocks experienced a significant downturn on Friday, primarily driven by a sell-off in technology shares and growing investor apprehension regarding the substantial expenditures on artificial intelligence.
Futures trading indicated a weak start for U.S. markets, with the S&P 500 down nearly 1 percent and the Nasdaq down 1.5 percent. Investors are questioning whether the immense investments in AI infrastructure, including data centers and chip factories, will yield the anticipated returns.
The rapid advancements and potential of AI have fueled a remarkable rally and high valuations in tech stocks. However, a growing skepticism exists about the ability of companies to generate revenue growth commensurate with their enormous AI spending.
Adding to market anxieties were renewed tensions between the United States and Iran, which have impacted shipping through the Strait of Hormuz and contributed to a rise in oil prices. Brent crude was trading near $86 a barrel.
Earlier, Asian markets saw a sharp decline, led by technology stocks. Taiwan's Taiex index dropped 6.5%, a day after Taiwan Semiconductor Manufacturing Company (TSMC) announced an additional $100 billion investment in its U.S. operations. Shares of TSMC fell over 7%. Analysts at BNY noted record foreign investor selling in Taiwanese stocks, citing a reassessment of tech company valuations and increased competition from Chinese firms, though they did not predict a complete collapse of the AI growth narrative.
Japan's Nikkei 225 fell more than 4%. South Korea's KOSPI index, a key indicator for AI investments, has seen volatility despite a year-to-date gain of over 60% (markets were closed Friday).
In Europe, the Stoxx 600 index declined by 0.6%, and Germany's DAX fell 0.7%. Shares of ASML, a critical supplier of chip manufacturing equipment, were down more than 3%. The Philadelphia Semiconductor index has fallen 8.4% this week and is down 19% from its June peak.