[Closing Bell] Nasdaq Plunges 2.60% on AI Investment Concerns; Semiconductor Sector Crashes 6.72%

Wall Street Takes a Hit: AI Stocks Plunge, Dragging Nasdaq Down

The New York Stock Exchange saw a wave of selling pressure targeting artificial intelligence (AI) stocks, resulting in a more than 2% drop in the Nasdaq Composite Index. The catalyst for this decline was Meta's earnings report, which brought into focus the burden of funding large-scale investments, subsequently impacting semiconductor and data center infrastructure companies. Conversely, consumer staples, pharmaceuticals, and telecom stocks rose, keeping the Dow Jones Industrial Average (DJIA) narrowly in positive territory.

As of the local time on the 22nd, the Nasdaq Composite Index closed at 26,008.86, down 694.00 points (2.60%) from the previous trading day. The Standard & Poor's (S&P) 500 Index ended at 7,663.43, a decrease of 93.74 points (1.21%). The Dow Jones Industrial Average (DJIA) closed at 52,867.98, up 11.89 points (0.02%). The Philadelphia Semiconductor Index plummeted 773.58 points (6.72%) to 10,731.98.

Meta and Lam Research saw their stock prices fall by 6.98% and 11.76%, respectively, as investors grew concerned about the companies' ability to finance their expansion plans and growth prospects. Meanwhile, the Dow managed to hold onto its gains, thanks to the strength in non-discretionary sectors like consumer staples and healthcare, with the 10-year Treasury yield dipping below 5%.

Wall Street Takes a Hit: Late-Session Selling Pressure Erases Intraday Gains

Meta Plummets as Spending Concerns Weigh on Investors

Meta experienced a sharp decline, falling by 6.98%. Despite reporting a strong third-quarter revenue of $64.6 billion, a 26% increase from the previous year, the company's investment expenditures surpassed its cash generated from operations. Capital expenditures, including principal repayments on finance leases, totaled $34.91 billion, while operating cash flow was $32.79 billion, resulting in a negative free cash flow of $2.12 billion.

The market's attention turned to Meta's future investment needs. The company raised the lower end of its capital expenditure forecast range for the year to $130 billion from $135 billion, while maintaining the upper end at $145 billion. Additionally, Meta plans to introduce non-voting C-class shares in January next year, which can be used for funding purposes. These plans, unveiled alongside revenue expansion, have sparked concerns about the funding requirements for its AI business.

Larry Research Plunges as Supply Constraints Weigh on Outlook

Larry Research, a semiconductor equipment company, suffered a significant drop, falling by 11.76%. While the company reported record-breaking revenue of $8.22 billion for the quarter ended September, its guidance for the next quarter's revenue, with a midpoint of $8.6 billion, only slightly exceeded market expectations. The company attributed potential delays in equipment shipments to short-term supply constraints and anticipated a lower contribution from its Chinese customers.

Market Turbulence Hits Semiconductor and AI-Related Stocks

The semiconductor sector witnessed a significant decline, with key equipment manufacturers and chipmakers taking a hit. KLA suffered a drop of 9.54%, while Applied Materials saw a decline of 8.16%. AMD and Intel followed suit, falling 8.10% and 8.04%, respectively. Micron Technology also experienced a drop, closing at 6.26% lower. NVIDIA and Broadcom joined the downward trend, shedding 4.40% and 4.31%, respectively.

Stocks associated with AI infrastructure investments also showed weakness. Server provider Dell Technologies dipped 6.78%, and network equipment manufacturer Arista Networks fell 7.19%. Power infrastructure companies GE Vernova and Eaton were down 10.64% and 6.33%, respectively. CoreWeave, an AI cloud company with a history of volatile share prices due to leverage, continued its downward trajectory, closing 10.1% lower.

Among the large-cap technology stocks, Amazon took a hit, dropping 4.57%. Alphabet's Class A shares declined 3.15%, and Microsoft saw a more modest fall of 2.23%. Tesla also joined the red, closing 3.08% lower. Apple, however, stood relatively strong, rising 1.23% and outperforming its peers in the technology sector.

As the market digests the impact of rising interest rates and economic uncertainties, late-session selling pressure continues to weigh on these high-growth sectors. Investors remain cautious, leading to margin call liquidations and erasing intraday gains.

Wall Street Sees Late-Session Selling Pressure as Tech Stocks Weigh on Indices

Despite a strong performance from consumer staples and healthcare stocks, late-session selling pressure erased intraday gains, with technology stocks leading the decline. The S&P 500 saw approximately two-thirds of its constituents rise during the day, but the significant market capitalization of tech stocks dragged the index lower.

Consumer Staples and Healthcare Lead the Charge

• Essential consumer goods and healthcare sectors witnessed notable strength. Procter & Gamble (P&G) surged by 5.58%, while Walmart and Coca-Cola followed with respective gains of 2.82% and 2.87%. Johnson & Johnson and Eli Lilly saw increases of 3.81% and 2.83%, respectively.
• Telecommunication giants Verizon and AT&T also joined the upward trend, rising by 3.77% and 3.79%, respectively.

Strong Earnings Drive Market Optimism

• P&G, Lockheed Martin, and CSX Corporation, a leading railway company, contributed to the market's momentum by reporting earnings that exceeded market expectations.
• Approximately two-thirds of the S&P 500 constituents experienced gains, indicating a broader market rise.

Geopolitical Tensions Impact Oil Prices

• Rising oil prices, influenced by Middle East tensions, put pressure on investor sentiment. According to Reuters, Brent crude oil futures settled at $113.17 per barrel, a 4.35-dollar (4.0%) increase from the previous trading day.
• Concerns over potential disruptions in oil supply intensified following the Houthi rebel attack on Saudi Arabia.

Yield Rates and Commercialization

• The yield rates on government bonds remained relatively stable, with the 10-year Treasury note yielding around 3.00%.
• Commercialization activities in the market were notable, with a focus on essential consumer goods and healthcare sectors.

U.S. Treasury Bonds Strengthen as Safe-Haven Demand Rises

The U.S. Treasury market witnessed a surge in demand, with the 10-year note yield dipping below 5%. A sharp decline in technology stocks dampened investor sentiment, leading to increased appetite for relatively safer government bonds. As a result, bond prices climbed, pushing yield rates lower.