AI shares slide globally as oil climbs amid Iran war uncertainty
AI-related shares fell sharply on Thursday, dragging markets lower around the world, while oil prices climbed amid uncertainty over the war with Iran. The sell-off reflected investor concern about the high cost of building data centres and buying chips, as well as doubts that years of rapid growth have left some technology stocks too expensive.
In the US, the S&P 500 fell 1.2% and the Nasdaq 2.6%, although most other US shares rose and the Dow was nearly flat. Nvidia dropped 4.4%, Meta fell 7% and chip-equipment maker Lam Research lost 11.8%, despite reporting stronger-than-expected revenue and profit. Brent crude rose 4% to $113.17 a barrel, its highest level in five months; Asian indexes also fell, while US Treasury yields declined as investors sought safer assets.
In short
- AI shares led a global market sell-off.
- Brent crude rose 4% to $113.17 a barrel.
- US bond yields fell as investors sought safer assets.
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The case for
Investors may reasonably see the sell-off as a reassessment of whether the enormous cost of data centres and chips can be matched by durable profits. After years of rapid gains, high valuations leave some technology shares vulnerable if expectations prove too optimistic; the sharp falls despite strong results from Lam Research suggest investors are weighing future returns as well as current performance.
The case against
Others may argue that a broad retreat from AI shares risks overlooking strong demand and the companies’ capacity to turn heavy investment into lasting growth. One day’s price moves, especially amid uncertainty over the Iran war and rising oil prices, do not establish that the sector’s prospects have weakened; falling Treasury yields and gains in many other US shares also suggest a shift in risk appetite rather than a verdict on AI.
Explained simply
Artificial intelligence depends on powerful computer chips and large data centres, which companies are spending heavily to build. Nvidia makes widely used AI chips, while Meta is among the technology firms investing in AI; Lam Research supplies equipment used to manufacture chips.
Investors buy and sell shares based partly on what they expect companies to earn in future. If they think the cost of AI investment is high or that share prices have risen too far, they may reassess what those shares are worth. Oil prices can also affect markets because energy costs influence businesses and households, while uncertainty about conflict can shape expectations for oil supply.
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Originally published by The Guardian as “Sharp drops for AI stocks overwhelm markets worldwide as oil prices jump”.