On Wednesday, AI stocks experienced another sell-off, impacting the U.S. market significantly. The S&P 500 fell 1.6%, marking its first consecutive drop in three weeks. It returned to levels last seen in early May. The Dow Jones Industrial Average decreased by 953 points, or 1.9%, while the Nasdaq composite, leading the decline, slid 2%.
Wall Street has been unstable since last week. AI stocks, previously setting records, suddenly began to decline. Concerns have arisen that their prices escalated too rapidly due to AI enthusiasm. Now, investors question whether the drop has cleared excessive optimism from stock prices or if a prolonged downturn is beginning.
Super Micro Computer, which provides AI servers, saw its shares plummet 28% after announcing plans to raise $7 billion by selling stock and convertible preferred stock. Such actions generally generate more funds when stock prices are high, but they can dilute existing shareholders’ stakes.
Micron Technology experienced a volatile period, swinging from an early loss of nearly 4% to a modest gain, then back to a 4.7% loss. Following a volatile stretch, where it fell 7.7% on Thursday and another 13.3% on Friday, it rallied 9.9% on Monday. Despite fluctuations, its stock has risen 212.5% this year.
Nvidia, a chip company valued at nearly $4.9 trillion due to the AI surge, significantly weighed on the S&P 500 after a 3.7% decline. Another AI beneficiary, Broadcom, fell 5.1%. Some pressure on AI stocks might stem from investors withdrawing funds to prepare for big debuts of AI giants on the U.S. stock market. For instance, SpaceX’s IPO might occur later this week.
Companies with substantial fuel expenses also dragged the market down. United Airlines fell 6.2%, and Carnival, a cruise operator, dropped 6.3% as oil prices increased due to recent tensions in the Iran conflict. Brent crude oil prices rose 1.8% to $93.10 after President Donald Trump’s warning that Iran would “pay the price” for stalled negotiations amid the ongoing war. This conflict has effectively shut the Strait of Hormuz to oil tankers, disrupting the flow of crude from the Persian Gulf globally.
High oil prices have driven inflation upward. Wednesday’s report showed U.S. consumer prices surged at their fastest rate in three years in May. Despite this, Treasury yields remained steady because the data aligned with economists’ predictions. The underlying inflation measure rose less than expected from April to May. The 10-year Treasury yield edged up to 4.54% from 4.53% late Tuesday. Meanwhile, the two-year Treasury yield stayed at 4.13%, closely tracking expectations for Federal Reserve rate changes. Traders recently anticipated that the Fed might raise its main interest rate at least once this year due to inflation and a robust job market. Wednesday’s inflation update did not significantly alter these predictions according to CME Group data.
High yields can slow economies and decrease values for varied investments, including stocks and cryptocurrencies. They particularly impact expensive investments, with some calling AI an overinflated bubble.
The overall outcome saw the S&P 500 fall 119.66 points to 7,266.99. The Dow Jones Industrial Average decreased by 953.33 points to 49,918.78, and the Nasdaq composite declined 509.32 points to 25,169.50.
Internationally, European market indexes had mixed results after more severe declines in Asia. South Korea’s Kospi dropped 4.5%, affected by losses for tech giants Samsung Electronics and SK Hynix. Tokyo’s Nikkei 225 decreased 1.9% after data indicated Japan’s producer price index rose at its fastest rate in over three years in May. Tech and telecom giant SoftBank Group, with significant AI focus, saw an 8.3% loss.
Contributing to this report were AP Business Writers Chan Ho-him and Matt Ott.