U.S. stocks fell on Thursday as firms that profited from artificial intelligence trading came under renewed pressure amid concerns about their skyrocketing valuations.
The Dow Jones Industrial Average fell by 401 points, or 0.8%. The S&P 500 traded down 1%, while the Nasdaq Composite fell 1.8%. The Nasdaq 100 has fallen more than 2% since last Friday’s close and is on track for its worst week since early April. The biggest impact of the decline came from Nvidia, Microsoft, Palantir Technologies, Broadcom and Advanced Micro Devices.
AI stocks have been moving erratically since the beginning of November, and that continued on Thursday. Qualcomm fell 4% after the chipmaker reported better-than-expected quarterly results but said it could lose future business with Apple. Wednesday’s standout AMD lost 7%, while Palantir and Oracle fell 7% and 2%, respectively. Shares in artificial intelligence darling Nvidia and Magnificent Seven peer Meta Platforms also sank.
“So much of it from a valuation standpoint has been so lofty and praised for perfection that we’re seeing a bit of a dichotomy in the market between firms that are winning and growing versus those that may be winning on revenue but providing tepid guidance on net profit or from an operating profit standpoint,” said Mike Mussio, president of FBB Capital Partners.
“It’s the difference between some of these firms that have double-digit earnings growth versus those that have double-digit declines, and there’s not much in between.”
Thursday’s drop exacerbated concerns about the state of the labor market, as a significant number of layoffs were announced in October. October layoffs totaled more than 153,000, nearly triple the number in September and 175% more than the same period last year, according to Challenger, Gray and Christmas, SEEbiz reports. That’s the highest level recorded for October in 22 years, in what is shaping up to be the worst layoff year since 2009.
The data suddenly paints a shaky picture of the US economy, especially given the lack of economic reporting as a result of the ongoing US government shutdown, now more than a month old and the longest in history.
“We’re starting to get nitty-gritty economic data … that’s not government-related and not very rosy,” Mussio said, adding that “all those things are just setting the stage for some market weakness.” That doesn’t necessarily mean “this is the start of a big downturn or anything like that,” he continued. The investment manager believes that if the government reopens and data after that shows that the consumer is “not really dead” as the holiday season unfolds, there could be a typical year-end rally.
