Wall Street closed lower on Friday, ending a turbulent week for the AI trade with the Dow Jones Industrial Average falling 652.82 points, or 1.23%, to 52,215.16; the S&P 500 lost 39.75 points, or 0.52%, to 7,623.68; and the Nasdaq Composite dropped 53.52 points, or 0.21%, to 25,955.34. For the week, the S&P 500 fell 0.5% and the Nasdaq dropped 0.7%, while the blue-chip Dow rose 0.4%, marking its third straight weekly gain. According to Reuters, the weakness for tech stocks was so overwhelming that it masked strength for the rest of the U.S. market, where most stocks actually rose. The Philadelphia Semiconductor Index plummeted 6.7% overnight, bringing the index to its lowest level in three months.
AI-related stocks experienced their most severe decline as investors worried that the industry's boom may be under threat due to rising borrowing costs for data centers and AI chip purchases. Nvidia, the largest company on Wall Street by total value, dropped 4.4%, carrying more weight on the S&P 500 than any other stock. CoreWeave, which has borrowed money to buy Nvidia's AI chips that it rents out to customers over the cloud, fell 10.1% due to worries about its debt. Lam Research, whose equipment and services help make semiconductors, tumbled 11.8% despite reporting gains in profit and revenue for the summer that were slightly stronger than analysts expected. The company's stock had surged 52.4% for the year so far, nearly quadruple the gain for the overall S&P 500, leaving plenty of room for potential disappointment.
According to Reuters, investors turned their focus to major earnings from Alphabet, Microsoft, and Amazon, along with next week's Federal Reserve meeting. S&P 500 companies are on track to report more than 32% growth in third quarter earnings, according to LSEG IBES data. The Fed is expected to hold rates steady on Wednesday, with investors looking for clues on the possibility of a December rate hike. Wall Street is also watching the November 3 midterm elections, which will determine control of Congress. As per Man Group's Kristina Hooper, there is still fallout from questioning the AI trade, with potential for less invested in AI data center buildout next year than projected, giving pause to investors. Next week, about one-third of S&P 500 companies report quarterly results, including the three AI hyperscalers whose capital spending forecasts will be closely watched on Wall Street.
Major technology companies reported mixed quarterly results that failed to boost investor sentiment. Meta Platforms lost 7% after reporting stronger revenue for the latest quarter than analysts expected, though its profit fell short. The company behind Facebook and Instagram also announced it's creating a new class of stock to raise money to pay for AI investments and other expenses. Tesla fell 3.1% after reporting a stronger profit for the summer than analysts expected, though its revenue was weaker than forecast. Other big tech stocks likewise fell following quarterly reports that included at least some encouraging nuggets, as investors focused on the broader AI sector concerns rather than individual company performance.
The energy sector rose 2.5%, hitting a record high, with Brent crude hitting its highest level since late April after Houthi attacks in Saudi Arabia stoked concern over further disruption to energy supplies from the Middle East. Telecommunications stocks fell, weighing on the communication services sector, after a report that SpaceX was seeking thousands of cell sites for a fourth wireless carrier. AT&T and T-Mobile both sank nearly 8% while Verizon shed 1.2%, though SpaceX shares rose 1.9%. US cell tower operators gained, with Crown Castle up 9% and American Tower up 4%. American Express shares fell 3.7%, weighing on the Dow as the company raised its profit forecast while announcing plans to eliminate 5% of its workforce. SLB shares rose 7% after the oilfield services provider beat Wall Street estimates for third-quarter profit.
