Global stock markets saw a downturn as investor concerns grew over the significant AI spending by major tech companies. The S&P 500 fell 1.2%, marking its potential first back-to-back weekly loss since March. The Dow Jones Industrial Average dropped 506 points, or 1%, and the Nasdaq Composite sank 2.2%. This decline was largely driven by sharp drops in the share prices of Alphabet and Tesla after their earnings reports revealed substantial capital outlays for AI infrastructure.
Alphabet’s shares fell 6.9% after the Google parent company indicated it would increase its AI spending by another $15 billion to a total of $200 billion for the year, alongside burning through cash in its most recent quarter. Tesla saw an even steeper decline, with its shares tumbling 14.5% after posting its first cash burn in two years, also attributed to heavy AI infrastructure investments. These results from two of the "Magnificent Seven" megacap companies spooked investors who had previously rewarded hyperscalers with high valuations based on expectations of significant revenue gains, but are now seeing them outspend their operating cash flow.
Meanwhile, oil prices surged past the $100 a barrel mark for the first time since May, largely due to escalating geopolitical tensions in the Middle East. Brent crude oil jumped 7% to settle at $100.69, reaching as high as $102 during intraday trading. This spike was triggered by increased fighting in the Middle East, including attacks on two Saudi oil tankers in the Red Sea by Iran-backed Houthi rebels. The US military responded with a 12th successive night of strikes on Iran, and US President Donald Trump threatened further action against the Houthis, raising concerns about disruptions to global oil supplies and potentially higher inflation and interest rates.
