AI Stock Sell-Off Spooks Wall Street, Global Shares Volatile

Global financial markets experienced a mixed trading session on Thursday, with varying performances across continents influenced significantly by another substantial sell-off in artificial-intelligence (AI) stocks. This downturn had a notable impact on the U.S. market, which had already seen a sharp decline the previous day.

In early European trading, Germany’s DAX remained largely stable, nearly unchanged at 24,188.88. The CAC 40 in Paris showed a modest gain of 0.4% to reach 8,192.55, while London’s FTSE 100 also edged up by 0.5% to 10,307.39. Looking to the U.S., futures for the S&P 500 were up 0.8%, and those for the Dow Jones Industrial Average gained 0.7%, indicating a potential rebound after Wednesday’s sharp losses.

Asian markets presented a diverse picture. Tokyo’s Nikkei 225 managed a slight increase of less than 0.1% to 64,217.27, recovering from earlier declines. South Korea’s Kospi gained 0.4% to 7,763.95, and India’s Sensex rose 0.2%. Conversely, Hong Kong’s Hang Seng fell 0.7% to 24,249.29, the Shanghai Composite index was down 0.2% to 3,987.01, and Australia’s S&P/ASX 200 shed 0.2% to 8,633.20.

The primary driver behind the recent volatility was the continued scrutiny and sell-off of Wall Street’s former superstar AI stocks. On Wednesday, the S&P 500 dropped 1.6%, marking its first back-to-back decline in three weeks and returning to its early May levels at 7,266.99. The Dow tumbled 1.9%, and the Nasdaq composite, heavily weighted with tech stocks, led the market lower with a 2% slide.

This market shakiness has persisted since last week, when AI stocks transitioned from record-setting rallies to sudden declines. A prevailing concern among investors is that the prices of these AI-related companies may have escalated too rapidly, too soon, fueled by what some term "AI mania." The critical question now facing the market is whether this recent downturn signifies a healthy correction that has purged excessive optimism from stock prices, or if it marks the beginning of a more prolonged market slump for the sector.

Specific examples highlight the intense volatility within the AI segment. Micron Technology experienced a turbulent day, swinging from an early loss of nearly 4% to a modest gain, only to end with a 4.7% loss. This follows a wild stretch where it dropped 7.7% last Thursday, plunged another 13.3% on Friday, and then rallied by 9.9% on Monday. Nvidia, the chip giant whose market capitalization has soared to nearly $4.9 trillion due to the AI boom, was the heaviest drag on the S&P 500, falling 3.7%. Broadcom, another significant beneficiary of the AI trend, was the second heaviest weight, declining 5.1%.

Compounding the pressure on AI stocks, some investors are reportedly liquidating positions to free up capital in anticipation of several high-profile debuts on the U.S. stock market. For instance, Elon Musk’s SpaceX is expected to make its initial public offering (IPO) potentially later this week, drawing significant investor attention and capital.

Meanwhile, oil prices saw fluctuations. Early Thursday, Brent crude oil, the international benchmark, fell by $1.30 to $91.80 per barrel, while U.S. benchmark crude oil was down $1.22 to $88.81 a barrel. This drop followed earlier gains and came after the U.S. launched a second round of airstrikes against Iran. On Wednesday, oil prices had climbed after President Donald Trump issued a warning that Iran would “pay the price” for stalled negotiations between the two nations. The ongoing conflict in the Middle East has effectively kept the Strait of Hormuz shut to oil tankers, impeding the global delivery of crude from the Persian Gulf. Before the war's commencement in late February, Brent crude was trading around $70 a barrel.

The elevated oil prices have contributed to rising inflation. A report released on Wednesday revealed that prices for U.S. consumers surged in May at the highest rate in three years. Consequently, traders are increasingly betting that the Federal Reserve will be compelled to hike its main interest rate at least once this year, driven by persistent price pressures and the robustness of the U.S. job market. Historically, high yields can temper economic growth and depress the value of various investments, including stocks and cryptocurrencies. These conditions particularly affect investments deemed overpriced, leading some critics to label the current AI investment fervor as a bubble, where valuations have inflated beyond sustainable levels.

In the currency markets early Thursday, the U.S. dollar slightly weakened against the Japanese yen, slipping to 160.54 yen from 160.56 yen. The euro also saw a minor dip against the dollar, falling to $1.1534 from $1.1537.