Friday morning brought another wave of selling on Wall Street. While the panic selling in big artificial intelligence names seemed to be slowing down a bit, the sudden surge in oil prices created fresh headaches for everyday investors.
By 10:16 ET (14:16 GMT), the S&P 500 had fallen 45 points, or 0.6%. The tech-heavy Nasdaq Composite slipped 58 points, or 0.2%, while the blue-chip Dow Jones Industrial Average took the biggest hit, falling 683 points, or 1.3%.
Vital Knowledge's market watchers report that trader sentiment has taken a sharp hit recently:“AI sentiment and positioning have moved aggressively towards the negative end of the spectrum in the immediate term, which may help the group bounce back, but the industry has permanently entered a new era, characterized by less hospitable capital markets.”
This follow-up decline comes on the heels of Thursday's brutal session where the Nasdaq crashed 2.6%, its biggest single-day decline since June. The main concern troubling traders at the moment is simple: can these big tech companies really find the cash needed to finance the next huge wave of AI infrastructure?
Meta's Share Plans and Capital Worries Shake Confidence
This panic started with Instagram's parent company Meta Platform. Meta revealed plans to issue a new batch of non-voting shares to raise cash for its AI ambitions. With free cash flow shrinking and borrowing costs likely to rise in the coming months, big tech companies like Meta may have to sell new shares to finance their computing hardware. Of course, that extra share supply could easily dilute existing investors and push prices down. Meta shares slipped again early Friday after suffering their biggest one-day decline since July a day earlier.
Nvidia CEO Jensen Huang added fuel to that fire during an appearance on CNBC. He candidly acknowledged that the industry is facing a real cash crunch to build AI data centers“Demand for capital far exceeds availability.”
Analysts at Yardeni Research reiterated the same point in a research note to clients:"Concerns have grown that [companies] are incurring fracking costs and won't be able to generate enough returns to justify their huge investments. Now, another concern is rising to the forefront: Is there enough capital on hand to meet everyone's ambitious AI spending plans?"
Bonds rose while crude oil reached above $115
Despite those jitters, the bloodshed subsided a bit as some AI names found buyers. At the same time, 10-year US Treasury yields moved upward. On Thursday, jittery investors flocked to government debt for safety, sending the market to its biggest one-day yield decline since March 2023.
अमेरिकी बांडों की सुरक्षा के लिए त्वरित उड़ान यूरोप में जो हो रहा है उससे बहुत अलग दिख रही थी। फ्रांसीसी ऋण बाज़ार गंभीर दबाव में बने हुए हैं, निवेशक निरंतर सामाजिक विरोध और अस्थिर वित्तीय स्थिति को पचाने की कोशिश कर रहे हैं। फ्रांसीसी बांड की पैदावार शुक्रवार को थोड़ी कम हो गई, गुरुवार को तेजी से बढ़ने के बाद इसमें तेजी आई।
Meanwhile, the energy market raised concerns. Crude oil prices rose on Friday morning and crossed the $115 per barrel level for the first time since May. Traders are clearly worried that the escalating conflict in the Middle East could overshadow recent improvements in energy supplies.
Even as rising gas and oil prices threaten to keep inflation stagnant, most traders expect the Federal Reserve to pause and abandon interest rate hikes at its upcoming meeting next week. After introducing its first rate hike since 2023 in September, many Fed officials have pushed back on the idea of an immediate hike. However, they continue to say that inflation should return to their 2% target. Most traders are still betting the central bank will make another rate hike at its final meeting of the year in December.
In single-stock news, Western Digital lost more than 1% in early deals, even after reporting solid quarterly figures. Western Digital shares are up more than 86% so far this year, driven by strong demand for the flash memory and storage hardware needed to power AI data centers.
(Ayushman Ojha contributed reporting)
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Key Points for Stock and Energy Traders
- Lack of AI funding:Tech giants are finding it harder and more expensive to finance large-scale data center projects, leading companies like Meta to issue shares and driving down the stock price.
- Energy shock:Oil crossing $115 raises the risk of sudden inflation, making it harder for central banks to ease financing conditions.
- Fed game plan:Expect a pause from the Fed next week, but keep your eyes on December, where another rate hike remains a possibility.
- Selective Opportunities:Broad market selloffs often separate the real cash-flow winners from the pure hype, making stock picking far more important than simply buying index dips.