Stocks suffered a steep sell-off Thursday as investors questioned whether the enormous sums being poured into artificial intelligence will ultimately generate sufficient returns, while a sharp rise in oil prices added to market anxiety.
The technology-heavy Nasdaq Composite, home to many companies tied to the AI boom, fell as much as 751 points, or 2.8%, shortly before the closing bell. It recovered some ground but still ended down 694 points at 26,009. The S&P 500 declined 1.2%, while the blue-chip Dow Jones Industrial Average finished nearly flat, gaining less than 0.1%.
Wall Street analysts say investors are growing uneasy about the vast debt AI companies are assuming to fund data center construction and about whether those businesses can deliver the profits markets now expect.
“AI growth is dependent on capex — this is one of the most capital-intensive industries ever — and since capex is dramatically outpacing operating cash flow, companies are reliant on the largess of equity and debt investors to underwrite all the spending,” Adam Crisafulli, head of Vital Knowledge, wrote in a research note Thursday. “But lately those markets are becoming increasingly less accommodating.”
Crisafulli cautioned that a slowdown in debt issuance, as lending conditions become more restrictive, could make it harder for companies to pay for the massive AI infrastructure expansion.
The Brookings Institution, a nonpartisan think tank, estimates that building out AI infrastructure could require more than $10 trillion from 2025 through 2032. Carl Weinberg, chief economist at financial market research firm High Frequency Economics, said that would represent the biggest investment wave in U.S. history — surpassing even the construction of 19th-century railroads and the dot-com boom.
Many of the companies leading the AI surge remain highly profitable, but investors are taking a closer look at the scale of their spending as those companies’ stock valuations continue to climb.
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Thursday’s decline followed a series of mixed corporate earnings reports. Meta Platforms, which is advancing its Muse AI agent, dropped 7% after reporting revenue above forecasts but profits below expectations. Tesla shares fell 3.1% after the electric vehicle maker posted better-than-anticipated summer earnings, while its revenue came in weaker than analysts had projected.
Higher oil prices also pressured stocks, fueled by fears that the war in Iran could intensify. West Texas Intermediate, the U.S. oil benchmark, rose 2.1% to $99.21 a barrel. Brent crude, the international benchmark, climbed 3.7% to roughly $113 a barrel.
