AI stock slump hurts Wall Street, ASX set to slide
Stan Choe
Updated ,first published
Drops for computer chip makers and other winners of the artificial intelligence boom dragged stock markets around the world lower on Thursday.
The S&P 500 index fell 0.5 percent, but the number of stocks in the index fell. The Dow Jones Industrial Average fell 105 points, or 0.2 percent, and the Nasdaq composite fell 1.5 percent.
The Australian share market is poised for a decline, with futures pointing to a 14 point, or 0.2 per cent, decline at the open. The ASX closed flat on Thursday. The Australian dollar was trading at 69.94¢ at 5.13am (AEST).
Nearly three in four stocks in the S&P 500 rose after many of the nation’s largest companies reported better-than-analysts-expected earnings in the latest quarter.
Abbott rose 10.7 percent after the healthcare company reported higher-than-expected profit and raised its earnings forecast for the full year. JB Hunt Transport Services rose 8 percent after the shipping company also beat analysts’ expectations in the latest quarter.
But a 1 percent move by Nvidia shares has a bigger impact on the S&P 500 than a 1 percent move by any other company because it’s the biggest on Wall Street by value.
And Nvidia had the heaviest weight in the index, falling 2.4 percent. Other AI winners also collapsed, giving back some of their big gains.
Micron Technology fell 5.6 percent, bringing its gain for the year to well below 199 percent. Sandisk fell 12.6 percent but still gained 494 percent for the year. Western Digital is down 9.2 percent but is still up 171 percent for the year.
Such stocks have been under pressure for weeks on concerns that their prices have risen too much and that the insatiable demand for computer memory and processors cannot be sustained if artificial intelligence cannot produce as much profit and productivity as promised.
Overall, the S&P 500 fell 38.63 points to 7,533.77 points. The Dow Jones Industrial Average decreased by 105.67 to 52,552.97, and the Nasdaq composite index decreased by 387.28 to 25,881.95.
The losses came even as Taiwan Semiconductor Manufacturing Co., a leading chip industry company, reported stronger earnings in its latest quarter than analysts expected. Its shares in Taiwan rose 1.2 percent, but its U.S.-listed shares fell 2.3 percent.
In South Korea, declines in AI winners such as Samsung Electronics and SK Hynix dragged the Kospi index down 6.4 percent. It has been among the world’s most turbulent markets in recent weeks due to how dominant the two AI winners have been.
The previous day the Kospi rose 6.2 percent, but in the last few weeks it has experienced declines of 8.9 percent, 7.8 percent and 5.3 percent.
The Bank of Korea’s hike in interest rates, the bank’s first since 2023, also weighed on stocks in Seoul.
Higher interest rates may limit inflation, but they also slow the economy and hurt the prices of all kinds of investments. Concerns are growing that the Federal Reserve and other central banks around the world may be forced to raise interest rates to rein in the effects of expensive oil.
Oil prices are near a one-month high on concerns that war with Iran will keep oil tankers away from the Strait of Hormuz and disrupt crude oil shipments from the Persian Gulf to customers around the world.
The barrel price of Brent crude oil briefly rose above $86 per barrel in the morning, then erased its gains and fell to $84.23, down 0.8 percent compared to the previous day.
In the bond market, the yield on the 10-year Treasury note rose from 4.55 percent to 4.56 percent at the end of Wednesday and rose to just 3.97 percent before the war with Iran began. Higher yields have caused the average 30-year mortgage rate to rise to the highest level in almost a year.
Mixed reports regarding the US economy increased the turmoil in the bond market. Shoppers spent less at U.S. retailers last month than economists expected, a report said. But after ignoring sales at gas stations, spending by U.S. consumers remained resilient.
A separate report said fewer U.S. workers applied for unemployment benefits last week, an indication of a solid labor market, while a third report said production in the mid-Atlantic region was better than economists expected.
Indices on stock markets abroad fell across much of Europe and Asia, including declines of 1.8 percent in Shanghai and 2.8 percent in Tokyo.
Hong Kong’s Hang Seng index was an outlier, rising 1.3 percent. Alibaba rose after China’s cyberspace regulator said Wednesday it had approved the use of its Apple Intelligence AI tool in China. An Alibaba spokesperson said the Qwen model will be integrated into Apple Intelligence.
