Markets suffer worst weekly losses since April
US tech stocks declined sharply this week, reflecting growing caution among investors about the sustainability of artificial intelligence-driven valuations. The Nasdaq Composite fell 1.6% on Friday, placing it on track for its worst weekly performance since early April. The S&P 500 dropped 1%, while the Dow Jones Industrial Average shed 300 points, or 0.65%.
This downturn follows months of strong market performance, with technology stocks leading the charge. However, concerns are now surfacing about whether these gains can be sustained, especially given the rising costs and risks associated with AI development.
Investor sentiment weakens across the board
Volatility returned to markets as the CBOE Volatility Index surged 16%, while CNN’s Fear and Greed Index dipped into “extreme fear” territory. Analysts at major financial institutions such as Goldman Sachs and Morgan Stanley raised red flags this week, highlighting elevated valuations and the rising difficulty of surpassing market expectations.
“There are some concerns percolating under the surface with AI valuations,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute. AI-related optimism has fueled tech’s rally, but some investors now question whether the returns will match the scale of investment.
Key tech stocks post sharp declines
Several leading AI and tech companies faced notable losses. Nvidia fell 3% on Friday, while Palantir dropped 1.6%. Oracle, which had previously surged after announcing a partnership with OpenAI, lost 11% this week, marking its worst performance in seven years.
Adding to the uncertainty, OpenAI faced scrutiny after internal statements raised doubts about funding its infrastructure commitments, estimated at $1.4 trillion. This led to broader concerns about the financial forecasts of companies tied to the AI boom.
External pressures deepen market unease
In addition to tech-related worries, the prolonged US government shutdown is contributing to investor unease. According to David Russell of TradeStation, the longer the shutdown continues, the greater its impact on consumer confidence and economic activity.
The University of Michigan reported a drop in consumer sentiment to its lowest point since June 2022, with many respondents citing the shutdown as a concern. Despite the volatility, some analysts, including Wren, believe a market pullback could offer buying opportunities for long-term investors.
