The Nasdaq Composite Index tumbled more than 700 points on Friday, a rocky close to October trading amid growing investor concerns about the health of the critical technology sector.
The rout followed a series of earnings reports from major tech companies that fell short of Wall Street's expectations. Intel's stock tumbled nearly 29% on the day, the chipmaker's biggest single-day drop since 1974. Shares of Google's parent, Alphabet, also continued to struggle following a 12% slide on Thursday that erased roughly $500 billion in market value.
Shares of Nvidia, the maker of advanced chips used to power AI models and a bellwether for the sector, fell 4.2%.
"This has been one of the worst tech earnings seasons in memory, with underwhelming results from a slew of very prominent companies," market analyst Adam Crisafulli, head of Vital Knowledge, said in a research note.
"The slump in tech stocks (and the attendant deterioration in tech sentiment) isn't simply a financial phenomenon and could undermine industry fundamentals by making it more difficult for companies to raise incremental debt and equity," he added in a separate report.
The negative sentiment around tech spread to other major stock indices on Friday. The S&P 500 sank 140 points, or 1.8%, while the blue-chip Dow Jones Industrial Average lost 572 points, or 1.1%.
Debt reckoning?
The weaker-than-expected tech earnings reports are heightening concerns that massive investments in AI will not generate the payoff Wall Street expects. Investors are also worried about the debt companies are taking on to finance data center capital expenditures and whether that debt is sustainable.
"Mega-cap stocks have faced increased selling pressure over the past two weeks as elevated AI-related spending and rising financing costs raise concerns over the path to profitability," Adam Turnquist, chief cross-asset strategist for brokerage firm LPL Financial, said in an email. "Recent earnings reports have added to these concerns, revealing slowing growth in select hyperscalers' core businesses."
Another factor weighing on tech stocks is investor expectations that the Federal Reserve will have to keep raising interest rates to curb economic growth and subdue inflation, which remains elevated.
The central bank left its benchmark rate unchanged this week, but many economists think it will hike rates as early as December and into 2027. That would make it more expensive for companies to borrow money to build the data centers required to power AI services, cutting into corporate profits.
Investors have been banking on the explosive growth of AI, which has propelled the stock market to record highs, to continue to dominate. However, that sentiment is now under threat. In a report earlier this week, Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities for UBS' Chief Investment Office, advised clients to "diversify beyond AI."
"While we maintain a constructive outlook on the structural growth of the AI theme, high expectations and potentially wide differences in company outcomes underscore the risks of single-stock concentration," she said. "We think investors should ensure their equity portfolios are broadly diversified."
Still, U.S. stocks remain only 3.4% below their all-time high, boosting the value of workers' 401(k) accounts.
Cryptocurrency prices also slumped after hackers believed to be linked to North Korea stole more than $6 billion from Binance, the world's biggest crypto exchange . The price of bitcoin fell toward $77,000, from more than $86,000 earlier this month.
