Stocks took a tumble on Wall Street today as concerns over rising AI spending rocked the tech sector. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all opened lower, with heavyweight tech names like Alphabet and Advanced Micro Devices (AMD) leading the decline.
AI Arms Race Rattles Investors
What's really weighing on investors' minds is the ballooning costs associated with the race to develop artificial intelligence. Google parent Alphabet reported stronger-than-expected quarterly earnings, but spooked the market by revealing plans to spend a whopping $75 billion on AI this year - around $15 billion more than analysts had forecast.
The big picture here is that the AI gold rush is putting immense financial pressure on tech giants, and investors are growing increasingly wary about whether these eye-watering investments will actually pay off. As CNBC reported, the introduction of China's low-cost DeepSeek AI model has "thrown Silicon Valley's playbook of investing scores of billions of dollars into building out pricey data centers into doubt."
Chip Stocks Also Tumble
It wasn't just the Alphabet news that spooked investors - chipmaker AMD also disappointed, with its stock plunging 10.6% even after reporting solid quarterly results. Investors were unnerved by CEO Lisa Su's lack of detail on the performance of AMD's AI offerings specifically, according to Bloomberg.
The broader pullback in tech and chip stocks dragged down the Nasdaq Composite, which fell 0.6% in morning trading. But the damage wasn't limited to just the tech-heavy index - the S&P 500 also slipped 0.3%, while the Dow Jones Industrial Average dipped 0.2%.
Potential Silver Linings
Despite the broad market jitters, there were a few bright spots. Nvidia and Super Micro Computer, two other key players in the AI space, saw their shares jump as investors looked for alternatives to the big tech names. And the drop in Treasury yields, sparked by an expected unchanged Treasury supply, provided a boost to equity markets.
But the overarching theme remains one of uncertainty, as investors grapple with the implications of a potential tech-led slowdown and the high-stakes AI arms race. As the Wall Street Journal noted, "the focus [has] swung back toward how much profit businesses are making" - and for now, that picture appears increasingly cloudy.