Nasdaq Falls 2.6% as Nvidia Slides on Fears Over AI Boom Financing
Key Facts
Technology stocks dragged U.S. indexes lower in the Oct. 22 session, with the Nasdaq Composite falling 2.6% to 26,008.86 and the S&P 500 declining 1.2% to 7,663.43, its worst daily performance since July. The Associated Press reported that a selloff in AI stocks spread to global markets as investors questioned whether the boom could continue to attract financing. Nvidia closed at $212.21 a share, compared with $221.97 in the previous session, according to EL7 data. The Dow Jones Industrial Average, by contrast, rose 11.89 points, or less than 0.1%, to 52,867.98. The Associated Press said the "latest jolt in AI stocks sent markets lower around the world."
The Associated Press linked volatility in AI stocks to concerns that high interest rates could threaten the sector's boom and increase borrowing costs for building data centers and buying additional chips. Companies expanding their computing infrastructure face higher financing expenses, while investors fear valuations for some technology stocks may have outpaced what corporate growth justifies, the news agency said. The yield on the 10-year U.S. Treasury fell to 4.97% on Oct. 22, from 5.13% late the previous day. The agency attributed the decline to investors turning to bonds for safer assets as stocks fell. The move in bonds came alongside a broad decline in sector stocks, not an easing of the concerns that triggered the selloff.
The pressure extended to semiconductor companies. Lam Research shares fell 11.8% on Oct. 22, despite the company reporting earnings and revenue that slightly exceeded analysts' expectations. The Associated Press noted that the company gave a forecast range for current-quarter earnings whose midpoint was slightly below analysts' estimates. In Asia, South Korea's Kospi fell 3.5%, Hong Kong's Hang Seng declined 3%, and Japan's Nikkei dropped 2.7%. Brent crude also rose 4% to $113.17 a barrel, after reaching its highest level in 5 months. The news agency said oil had risen from below $97 at the start of the month, as uncertainty persisted over the global energy sector's return to normal amid the war with Iran.
The selloff comes despite the strong growth Nvidia reported in results for the second quarter of its fiscal 2027, with data-center revenue reaching $89.0 billion, up 117% from the same period a year earlier. In its third-quarter guidance, the company forecast revenue of $108.0 billion, plus or minus 2%. It said its forecast assumes no data-center computing revenue from China. Chief Executive Jensen Huang offered an upbeat view of demand, saying "demand is accelerating" and that the company is seeing a "golden era" for AI labs and new startups. On Oct. 19, Nvidia shares had risen 1.4%, the Nasdaq gained 1.1% to 26,430, and the S&P 500 advanced 0.4% to 7,690, highlighting the market's uneven performance during the week.
The Federal Open Market Committee is scheduled to meet on Oct. 27 and 28, with a news conference on Oct. 28, according to the Federal Reserve's calendar. In September, the central bank raised its target interest-rate range by a quarter percentage point to 3.75%-4%, saying inflation remained elevated. The upcoming meeting comes as financing costs remain central to investor concerns about AI companies' expansion. In the week of Oct. 26, Alphabet and Microsoft were scheduled to report quarterly results on Wednesday, and Amazon on Thursday. The Associated Press said results from major technology companies would offer further clues about the scale of AI spending and whether it is delivering the promised profits and productivity.