AI stocks tumble as Nasdaq, S&P 500 fall and oil hits five-month high amid Iran war fears

Artificial intelligence (AI) stocks experienced significant declines on Thursday, contributing to a broad market downturn across global stock markets. Simultaneously, oil prices surged to their highest level in five months, driven by concerns over the Iran conflict and its potential impact on global energy supplies. The S&P 500 dropped 1.4%, while the Nasdaq Composite fell 2.2%, reflecting the heavy influence of technology stocks on the Nasdaq.

The Dow Jones Industrial Average experienced a smaller 0.6% decline. The more substantial losses in the Nasdaq were attributed to AI-related stocks, which have been volatile due to concerns about the high costs associated with building data centers and purchasing AI chips. Companies need substantial investments to expand their AI operations, and borrowing has become increasingly expensive.

Additionally, investors are wary that AI stocks may have become overvalued after years of substantial gains, despite continued business growth. Lam Research, a company that manufactures equipment and provides services for semiconductor manufacturing, reported stronger-than-expected revenue and profit in the summer quarter; however, its shares dropped 9.7% as its profit forecast for the final quarter of 2026 fell short of expectations.

Meta Platforms, the parent company of Facebook and Instagram, also saw its shares decline by 6.4%, with strong revenue but falling short of profit expectations. The company is investing in its Muse AI agent, and has introduced a new class of stock to raise funds for its AI-related expenses. Tesla shares rebounded slightly, rising 0.1% after reporting higher-than-expected summer-quarter profits, but revenue came in below forecasts.

Nvidia, the leading manufacturer of AI chips, experienced a 3.8% drop in its shares as investors sold off technology stocks. CoreWeave's shares fell 7.1% amid ongoing concerns about its debt, which has been used to purchase Nvidia's AI chips and rent computing power to customers through cloud services. The sell-off in AI and technology stocks began in Asia before spreading to other markets, with notable declines in South Korea's Kospi, Hong Kong's Hang Seng Index, and Japan's Nikkei 225.

The international oil benchmark, Brent crude, rose 2.6% to $111.60 per barrel after reaching its highest level in five months. The increase in oil prices exacerbates concerns about the impact on businesses and the wider economy. Stock market declines were observed in France's CAC 40 index, falling 1% amid rising government bond yields, reflecting investor worries about France's large government debt and budgetary challenges.

In the United States, inflation, strong economic growth, and other factors pushed government bond yields to unprecedented levels, reflecting heightened concerns about the country's debt situation. Despite the widespread market concerns, Treasury yields fell to 5.01% on Thursday, suggesting some investors were seeking safer investments amid the falling AI and technology stocks.