Tech Sell-Off and $100 Oil Drive US Stocks Lower
US equities declined as surging AI capital expenditure from major technology firms and a jump in crude prices reignited inflation fears, crushing the appeal of growth stocks.
US stocks fell over the week ending July 25, with technology shares bearing the brunt of the selling. The Nasdaq dropped roughly 2% between July 19 and July 25, outpacing declines of 0.6% for the S&P 500 and 0.4% for the Dow.
The selloff accelerated on Thursday following earnings reports from Tesla and Alphabet that highlighted the massive financial burden of artificial intelligence. Tesla plunged 14.5% after posting its first negative free cash flow in over two years, compounding existing worries about soft vehicle demand and heavy product development costs.
Alphabet fell 7% despite reporting robust cloud growth, as investors balked at a forecast pegging 2026 capital spending at around $200 billion. These results mark a potential turning point in market sentiment. While investors previously rewarded aggressive AI investment, they are now demanding concrete proof that these outlays will translate into higher profits. The shift increased pressure on Microsoft, Amazon and Meta ahead of their own quarterly releases.
Geopolitical Risks Lift Oil
Equities faced additional headwinds as Brent crude surged above $100 a barrel. Rising tensions between the US and Iran sparked fears of global supply disruptions, pushing Treasury yields higher on renewed inflation concerns.
Elevated yields typically compress the valuation multiples of growth stocks by making fixed-income assets more attractive and reducing the present value of future earnings. The macro environment triggered a broad sector rotation. Airlines, logistics companies and consumer-facing businesses sold off on expectations of higher operating costs.
Capital simultaneously flowed into energy and defense stocks, which stand to benefit from elevated crude prices and heightened geopolitical risk. Bitcoin also dropped as investors broadly reduced exposure to speculative, high-growth assets.
Semiconductor Volatility
Chipmakers reflected the market's conflicted stance on AI demand. The Philadelphia Semiconductor Index swung wildly, surging more than 5% on Tuesday. Companies like Micron, Western Digital and Sandisk posted double-digit gains as traders bought the dip, betting on sustained hardware demand while temporarily looking past the broader concerns about excessive tech spending.
