• U.S. stocks fell sharply, with the Nasdaq Composite down 1.55% and futures pointing to further declines as investors questioned AI spending returns and oil prices jumped on Middle East tensions.
  • Technology shares led the selloff, with Tesla (TSLA), Meta, and chipmakers posting significant premarket losses amid cautious earnings outlooks and rising capital expenditure concerns.
  • Safe-haven assets like Treasuries and the yen gained, while European and Chinese equities also declined, reflecting a broad risk-off sentiment.

AI Spending Concerns Resurface

U.S. stocks extended their decline on Thursday, with the Nasdaq Composite falling 1.55% by mid-morning trading, as investors reignited doubts about the returns on artificial-intelligence investments and grappled with a surge in oil prices linked to escalating Middle East tensions. The selloff followed a technology-led rebound on Wednesday, underscoring the market's fragility amid heightened geopolitical and corporate uncertainties.

Nasdaq 100 futures had already signaled trouble before the opening bell, down 1.6%, while S&P 500 and Dow futures fell 0.9% and 0.5%, respectively. The cash-market decline, however, reflects the Nasdaq Composite's actual performance post-opening, confirming the headline figure. "The market is at a crossroads, weighing the promise of AI against the reality of rising costs and geopolitical shocks," said a portfolio manager at a major asset manager, speaking on condition of anonymity.

Corporate Developments Amplify Selloff

The technology sector bore the brunt of the selling, with Tesla shares dropping 5.3% in premarket trading after the electric-vehicle maker cut its annual capital-expenditure forecast, raising questions about the pace of its AI and robotics initiatives. Meta Platforms (META) slipped 1.9% following reports of new non-voting shares aimed at funding AI investments, alongside approximately $825 billion in future lease and contractual commitments, many tied to computing infrastructure, according to people familiar with the matter.

Semiconductor stocks also suffered, with Lam Research (LRCX) tumbling more than 7% on a disappointing outlook, while Nvidia (NVDA) and Intel (INTC) fell 2.4% and 5.1%, respectively. Even IBM (IBM), which reported above-expectation quarterly results and raised its annual software-revenue forecast, saw its shares drop 5.7%, highlighting the market's demanding expectations. "Investors are no longer rewarding spending without clear monetization," noted an analyst at a leading brokerage, who requested anonymity.

Oil and Geopolitical Risks Add Pressure

Oil prices surged, with Brent crude rising more than 3% toward $112 a barrel, following additional Houthi attacks in Saudi Arabia. The U.S. ordered some diplomats to leave the country due to the militant threat, according to a State Department statement. The jump in energy costs poses a dual threat: increased business expenses and a potential drag on consumer spending, complicating the inflation outlook.

Meanwhile, investors sought safety in government bonds, driving the 10-year Treasury yield down eight basis points to approximately 5.04%, and the yen strengthened. The bond-market response suggests that immediate demand for safety outweighed inflation concerns, but the combination of higher oil and falling yields creates a challenging environment for equities.

Broader Market Retreat

The selloff was not confined to the U.S. Europe's Stoxx 600 fell 0.8%, led by banks and mining stocks, while China's CSI 300 dropped 1.8%, bringing its decline from its June high to 20%—the threshold for a bear market. Bitcoin fell approximately 3.4%, and French government-bond stress intensified, with the French-German 10-year yield spread reaching its highest level since 2011. These parallel moves suggest a broad retreat from risk, though the drivers vary by region.

What to Watch

In the near term, investors will focus on whether oil prices remain elevated, whether Middle East hostilities escalate, and whether upcoming earnings from companies like Spotify (SPOT), Blackstone (BX), American Airlines (AAL), and Honeywell (HON) can reassure markets about the health of the broader economy. "The AI trade is not dead, but it's maturing," said Santiago Mateo, head of equity at CaixaBank AM. "Investors are still willing to pay for growth, but they need to see evidence of monetization and earnings." Roberto Scholtes of Singular Bank expects the unwinding of AI-related positions to persist, citing the need for a substantial decline in bond yields or major geopolitical developments to reverse the trend.

Longer term, the central question remains whether AI investments will generate returns sufficient to justify their costs. For now, the market is in a precarious position, balancing the promise of technological innovation against the realities of financing costs and global instability.

Correction: An earlier version of this article misstated the decline in Nasdaq 100 futures; it was down 1.6%, not 1.5%. The article has been updated to reflect the accurate figures.