Global stock markets experienced a significant downturn, driven by investor concerns over increased AI spending by major tech companies and soaring oil prices. The S&P 500 dropped 1.2%, the Nasdaq fell 1.7%, and the Dow Jones Industrial Average declined 1%. This comes after Alphabet and Tesla, key "Magnificent Seven" firms, reported substantial cash burn due to their AI infrastructure investments. Alphabet's shares sank 6.9% after announcing it would ramp up AI spending by another $15 billion, reaching $200 billion for the year, while Tesla tumbled 15% after reporting its first cash burn in two years.
Brent crude oil topped $100 a barrel for the first time since May, rising nearly 7% to $100.69, fueled by escalating Middle East tensions, including attacks on tankers in the Red Sea and Iran's near-closure of the Strait of Hormuz. This surge in oil prices rekindled inflation worries, pushing government borrowing costs to long-term highs. Benchmark 10-year U.S. Treasury yields climbed to their highest levels since January 2025, reaching 4.7%.
European markets also felt the pressure, with the pan-European STOXX 600 index falling 1.2%. An earnings miss from chipmaker STMicroelectronics caused its shares to plunge 17.7%. Analysts noted that while the long-term implications of AI are powerful, the near-term investment story is becoming more nuanced, with some hyperscalers outspending their operating cash flow. Traders now see a roughly 80% chance of an interest rate hike by the Federal Reserve at its next meeting, up from about 10% a week prior.
