S&P 500, Nasdaq end sharply lower as revived AI doubts ignite tech selloff

On October 22, US stocks experienced a significant decline as negative sentiment surrounding artificial intelligence (AI) spread throughout the market. The S&P 500 ended the day sharply lower, while the tech-heavy Nasdaq suffered its steepest single-day drop since June. The primary catalyst for this tech selloff was a series of high-profile earnings reports, which raised fresh concerns about the AI spending race.

Meta Platforms, the parent company of Facebook, managed to beat analyst expectations with its results, but its stock plummeted following the revelation of its first cash outflow in over a decade due to AI-related expenditures. The company also announced plans to issue non-voting shares through a two-for-one split in an effort to raise capital for further AI investments.

However, Tesla's shares took a hit despite the electric car manufacturer reporting positive free cash flow and cutting its 2026 capital spending plans. The Philadelphia Semiconductor Exchange Index, which has been a major contributor to the current stock market rally, plummeted during the session, reflecting the impact of the AI doubts on the broader market.

Since its record closing high on June 22, the S&P 500 has lost about one-quarter of its value, but it remains well above its year-to-date gain. Market strategist Paul Nolte emphasized that the only sector struggling during this period is technology, which had been the primary driver of market gains until June.

Geopolitical tensions, particularly the ongoing conflicts in the Middle East, also contributed to market volatility. Iran-backed Houthis launched new strikes against Saudi targets, driving crude prices to a five-month high. Investors were concerned that persistent geopolitical strife could maintain inflation levels and force the Federal Reserve to continue raising interest rates.

Labor market data from the Labor Department showed that initial jobless claims remained near multi-decade lows, providing the Fed with an opportunity to focus on combating inflation. Financial markets currently anticipate a further 25 basis point rate increase by the end of the year.

In terms of earnings, 111 of the companies in the S&P 500 had reported third-quarter results, with 83% exceeding analyst expectations. Procter & Gamble warned about rising cost pressures eroding profit margins but still beat estimates, leading to a sharp rise in its stock price. Blackstone also advanced as wider credit spreads on AI-related debt presented opportunities for higher returns.

Despite the overall market decline, some firms managed to post positive results. Lockheed Martin raised its annual sales and profit forecast, while Spotify forecasted fourth-quarter profit above Wall Street estimates, anticipating growth from its AI-powered features. Union Pacific reported a quarterly earnings beat driven by core pricing gains, although it cautioned about the impact of rising fuel prices.

Chipmakers such as Western Digital, Intel, and Marvell suffered significant percentage losses amid the broader semiconductor selloff.