S&P 500 futures saw minor declines, with a 0.2% drop as of 10:22 a.m. Tokyo time, mirroring a broader downturn in Asian markets like the Nikkei 225 futures which fell 4.3% and Japan's Topix down 2.7%. This muted performance is largely attributed to an ongoing sell-off in AI-related stocks, particularly chipmakers, reignited by concerns over capital expenditure and financial discipline within the AI sector. Concerns intensified after Alphabet (Google's parent company) raised its capital spending forecast to as much as $205 billion for the year, leading investors to worry that such aggressive spending might eat into returns.
The decline in chip stocks was significant, with Nvidia falling 4.5% and other semiconductor firms like Advanced Micro Devices and Teradyne dropping over 5% and 4% respectively. The iShares Semiconductor ETF (SOXX) was down more than 3%. This sell-off was partly fueled by a report suggesting Nvidia might provide a $250 billion guarantee to finance an OpenAI data center, raising "fresh questions about circular financing within the AI ecosystem," according to Greg Boland, a Moomoo market strategy consultant. Dutch chipmaking equipment manufacturer ASML also dipped following news that a Chinese state-backed firm is producing similar lithography machines, potentially threatening ASML's sales.
Despite the semiconductor slump, Wall Street saw a mixed close. The Dow Jones Industrial Average rose 0.51% to 52,210.08, and the S&P 500 was marginally higher, up 0.02% to 7,413.18. The Nasdaq Composite, however, shed 0.18% to 24,932.08 due to the chip stock weakness. This mixed performance was partially offset by a temporary pause in military hostilities between the U.S. and Iran, which caused oil prices to plunge, with West Texas Intermediate crude falling 7.5% and Brent crude dropping 8.7%. The lower oil prices are expected to ease cost pressures ahead of the Federal Reserve's policy announcement on Wednesday, where traders still see a roughly one-in-three chance of a rate hike. Bitcoin also fell 2.7% to $63,172.75.
Investor attention is now sharply focused on an intensive earnings week, with over 170 companies in the S&P 500 set to report. Key tech giants like Microsoft, Meta Platforms, Apple, and Amazon.com are scheduled to release their financial results, with investors keenly watching their AI spending, orders, and returns on investment. This focus follows earlier aggressive infrastructure spending updates from Alphabet and Tesla that sparked a sector drawdown. Analysts like Chris Larkin from E*TRADE noted the potential for surprises this week, highlighting that a positive response to strong Mag-7 earnings is not guaranteed if AI spending levels continue to raise concerns.
