Nasdaq falls 2.5% on AI spending fears as broader market holds
A brutal week for mega-cap technology stocks pushed the Nasdaq down 2.5%, as soaring capital expenditure forecasts and delayed AI rollouts exposed growing investor anxiety about the sector's profitability.
The Nasdaq Composite fell 1.1% on Friday afternoon, capping a weekly decline of 2.5% driven by a broad retreat in mega-cap technology and artificial intelligence stocks. The index dipped as much as 2.2% in early trading. By contrast, the Dow Jones Industrial Average dropped just 0.3% on the day and 0.4% for the week, supported by strong earnings from an insurance company, while the S&P 500 declined 0.7% on Friday and 1.1% for the week.
The performance divergence highlights a stark market split. Investors holding equal-weighted index funds largely escaped the damage, but those concentrated in the largest tech names faced heavy losses. The selloff reflects a sudden reassessment of the massive capital being deployed toward AI infrastructure and the returns it will generate.
That reassessment accelerated on Thursday after Taiwan Semiconductor Manufacturing raised its capital expenditure forecast to as much as $64 billion. The move stoked widespread fears that AI infrastructure spending is reaching unsustainable levels. Earlier in the week, encouraging inflation data on Wednesday sparked a morning rally that quickly faded, failing to sustain momentum in the tech sector.
Specific company headlines compounded the macroeconomic anxiety. Alphabet fell 2.2% on Friday, marking its third consecutive decline following reports that its Gemini AI model is running months behind schedule. Meta Platforms dropped 2.9% as investors weighed a planned $125 billion to $145 billion spending program and an employee lawsuit alleging AI-assisted layoffs. IBM had previously suffered its worst single day since 1987 on Tuesday after revealing customers are shifting software budgets toward hardware purchases.
The damage extended well beyond AI infrastructure. Netflix tumbled 8.5% despite meeting expectations, with investors interpreting a planned reduction in the frequency of its engagement reports negatively. Space Exploration Technologies fell 5% to roughly $125, down from its $135 initial public offering price weeks ago, dragged lower by an impending lockup expiration that could flood the market with nearly a billion shares. The week's volatility was initially triggered on Monday by a historic South Korean market crash that activated circuit breakers, sending the recently listed SK Hynix sharply lower.
