AI stocks weigh on markets Thursday as oil rises to highest price since May

Global stock markets experienced a downturn on Thursday, as AI stocks weighed heavily on the markets, while oil prices surged to their highest level since May due to the ongoing war with Iran. The S&P 500 fell by 1.3%, with a sharper decline in Asia, where many markets had significant exposure to AI and technology stocks. The Nasdaq composite experienced the steepest drop at 2.4%, though stocks outside of tech did perform relatively better, and the Dow Jones Industrial Average only dropped by 0.1%.

Concerns surrounding AI stocks arose from the escalating costs of borrowing money to build data centers and acquiring AI chips. Some companies, like Lam Research, reported stronger-than-expected profits and revenue, but their stocks still declined by 11.1%. The company had set a profit forecast for the quarter that was slightly below analysts' expectations.

Additionally, Meta Platforms, which is launching its Muse AI agent, saw a 7.4% decline following strong revenue growth, but lower-than-expected profit. Tesla, too, dropped by 2.1% after mixed morning results, with revenue falling short of expectations.

Nvidia, the largest stock on Wall Street by total value, faced a 4.3% decline due to the negative global sentiment towards AI stocks. CoreWeave, a company that has borrowed to purchase Nvidia's AI chips, experienced a significant 9.6% drop due to concerns about its debt. The weakness in AI and other tech stocks began in Asia, with South Korea's Kospi down 3.5%, Hong Kong's Hang Seng falling by 3%, and Japan's Nikkei 225 sinking 2.7%.

The global market downturn was exacerbated by the rise in oil prices, with Brent crude oil increasing by 2.9% to US$111.99, reaching the top of the $97 to $112 range in October. European markets also suffered, with France's CAC 40 falling by 1.4%. Political unrest in France, fueled by rising yields for French government bonds, further impacted the market.

Concerns over government debt in developed economies, including the U.S., contributed to rising yields in the U.S. bond market, despite a generally strong economy and rising inflation. However, U.S. yields declined sharply, indicating that investors sought safer assets amidst the market turmoil.