Wall Street slides as Nasdaq drops over 2% amid AI spending concerns

U.S. stock indexes closed lower on Thursday, with the Nasdaq Composite slipping 2.7% to 25,988.10, its steepest daily decline since early June. The drop was driven by a wave of earnings reports that raised doubts about the sustainability of AI-related spending.

Meta Platforms posted earnings that beat expectations, but its shares fell 7.5% after the company recorded its first cash outflow in more than a decade, attributed to AI investments, and announced a two-for-one split of non-voting shares to raise capital. Tesla’s stock declined 2.1% despite posting positive free cash flow, as the automaker trimmed its 2026 capital-expenditure plan.

The Philadelphia Semiconductor Index (.SOX) plunged 6.3%, marking its biggest one-day percentage loss since June 23, while the broader S&P 500 slipped 1.4% and the Dow Jones Industrial Average fell 0.2%.

"It's the same narrative that we've seen in the last few weeks or even few months, where investors are rightfully questioning how much further the tech and AI adoption can go given some of the political and social backlash," said Oliver Pursche, senior vice president at Wealthspire Advisors. "If you’re a tech CEO, you can't afford to risk being left behind. From an investor's perspective, we don't know what the return on investment is going to be or whether governments might step in with restrictions."

Other companies reported mixed results. Procter & Gamble warned of rising cost pressures but beat estimates, sending its stock up 6%. Blackstone rose 6.6% after noting that widening credit spreads on AI-related debt could create higher-return opportunities. Lockheed Martin lifted its annual sales and profit outlook, gaining 6.1%, while Spotify surged 10.7% after forecasting fourth-quarter profit above estimates, citing AI-powered features. Union Pacific advanced 2.9% despite higher fuel costs.

Geopolitical tension added to market pressure, as Iran-backed Houthis launched new strikes against Saudi targets, pushing crude oil to a five-month high. Labor Department data showed initial unemployment claims near multi-decade lows, suggesting a stable labor market that could allow the Federal Reserve to focus on inflation, with markets pricing in a possible 25-basis-point rate hike before year-end.