AI Valuation Fears Drive Nasdaq to 5-Week Low
US tech stocks led a broad market selloff after a Chinese startup unveiled a competitive AI model, raising fresh doubts about the industry's massive capital expenditure plans.
US equities fell sharply on Friday, with the tech-heavy Nasdaq 100 dropping 1.49% to hit a five-week low. The S&P 500 declined 1.01% to a one-week low, while the Dow Jones Industrial Average lost 0.77%, falling to a two-and-a-half-week low.
The downturn originated in Asian markets and centered on semiconductor stocks, driven by the launch of the Kimi K3 model by Chinese AI startup Moonshot. The company claims the model rivals the top offerings from OpenAI and Anthropic PBC, a development that intensified investor skepticism over whether the sector's explosive valuations are justified.
For market professionals, the reaction underscores a fragile consensus around AI infrastructure spending. If Chinese competitors can produce frontier-level models without matching the capital expenditures of US tech giants, the underlying financial justification for the massive hardware buildout faces serious scrutiny. This dynamic weighed heavily on the Magnificent Seven technology stocks, dragging down the broader index.
Not all sectors participated in the rout. Energy stocks rallied as crude oil prices surged to a five-week high. Furthermore, consumer sentiment data offered a constructive signal for the economic outlook.
The University of Michigan's July consumer sentiment index jumped 4.9 points to a five-month high of 54.4, beating the 51.0 consensus. Crucially, one-year inflation expectations cooled to 4.2% from 4.6%, better than the 4.4% forecast, while five-to-ten-year expectations held steady at 3.3%.
However, underlying economic data pointed to some manufacturing softness. June manufacturing production was flat, missing the 0.1% monthly increase expected by economists. Import prices excluding petroleum rose 0.5% in June, slightly above the 0.4% estimate.
The housing sector presented a mixed picture. June housing starts surged 19.0% month-over-month to 1.427 million, easily clearing the 1.310 million forecast. Conversely, building permits—a leading indicator for future construction—dropped 3.0% to 1.367 million, falling short of the 1.403 million expectation.
