US stocks fell sharply on Thursday as investors questioned whether huge artificial intelligence investments will generate the profits needed to justify their cost, while rising oil prices added to market pressure.
The technology-heavy Nasdaq Composite dropped 751 points, or 2.8%, shortly before the close. The S&P 500 fell 1.4%, while the blue-chip Dow Jones Industrial Average slipped 0.1%.
Wall Street analysts said concerns were growing over the debt being taken on by AI companies to fund data-centre construction and whether those investments would deliver the returns expected by shareholders.
Adam Crisafulli, head of Vital Knowledge, said AI growth depended on spending in “one of the most capital-intensive industries ever”. He added that investment was running well ahead of operating cash flow, leaving companies reliant on equity and debt investors to finance the expansion.
“Lately those markets are becoming increasingly less accommodating,” Mr Crisafulli said in a research note. He warned that a slowdown in debt issuance, as credit conditions tighten, could restrict companies’ ability to fund the development of AI infrastructure.
The Brookings Institution estimates that more than $10 trillion will be needed to build AI infrastructure between 2025 and 2032. Carl Weinberg, chief economist at High Frequency Economics, said the scale of investment would be the largest in US history, exceeding the construction of the railways in the 19th century and the dotcom boom.
Although many of the companies driving the AI boom remain highly profitable, investors are reassessing the cost of the expansion as their share prices rise.
Markets were also affected by mixed corporate earnings. Meta Platforms fell 7.4% after reporting revenue above analysts’ expectations but weaker profits, while Tesla declined 2.1% despite stronger-than-expected summer profits after its revenue fell short of forecasts.
Higher oil prices, driven by concerns about an escalation in the war in Iran, added to the pressure. West Texas Intermediate, the US benchmark, rose 2.4% to $99.44 a barrel, while Brent crude increased 3.9% to $113.
