AI selloff: S&P 500 falls 4.4% on data center costs
Nvidia and chipmakers led a sharp market decline Thursday as investors reacted to high borrowing costs and political pressure on infrastructure spending.
By Dominic Foster ·
The S&P 500 dropped 4.4% on Thursday, marking its steepest decline since the market turmoil following the April 2025 tariff announcements.
The sell-off was driven by companies involved in building artificial intelligence infrastructure. The Nasdaq composite fell 5.5%, pushing it 11.9% below its all-time high set last month. Investors view a drop of more than 10% from a peak as a technical correction.
Nvidia, a major supplier of AI chips, saw its stock fall 9.3%. The company is currently down 2.6% for the year, following gains of approximately 39%, 171%, and 239% in the previous three years. Advanced Micro Devices declined 17.3%, while CoreWeave, which rents AI chip access, fell 9.8%. GE Vernova, a provider of power solutions for data centers, dropped 7.5%.
These stocks carry heavy weight in the S&P 500 index. A 1% change in Nvidia's price impacts the overall index more than a similar move by almost any other U.S. company. This concentration amplified the damage to the broader market.
Investors expressed concern that the cost of borrowing money may slow down new data center construction. Critics also argued that AI stock prices had risen too quickly and formed a bubble. The recent U.S. midterm elections added to these worries. Democratic victories nationwide raised the possibility of government pauses on data center projects. Voters from both parties have expressed dissatisfaction with rising power bills attributed to these facilities.
A slowdown in construction would reduce demand for AI chips, electricity, and other related services. This sector currently drives a large portion of U.S. economic growth. Global markets felt the pressure, with South Korea's Kospi index falling 5.3% and Japan's Nikkei 225 dropping 1.8%.
Some stocks bucked the downward trend. AppLovin surged 31% after reporting higher revenue and profit than expected. The company's board approved a share buyback program of up to $3.2 billion, increasing the total potential value of the program to $3.6 billion. Tapestry, which owns the Coach and Kate Spade brands, rose 7.1% on stronger than expected profits and raised its forecasts for the fiscal year.
In the bond market, yields on 10-year Treasuries fell to 4.84% from 4.90% late Wednesday. The yield had stood at 4.95% on election night and above 5.30% last month. The drop suggests investors are moving into U.S. Treasuries for safety. This occurred despite reports that fewer workers applied for unemployment benefits and that summer productivity grew faster than economists predicted.
In Europe, London's FTSE 100 dipped 0.4%. The Bank of England raised its main interest rate for the first time in three years to combat high inflation. Governor Andrew Bailey said the bank's next moves on interest rates will depend largely on the situation in the Middle East.
The bank noted that resolving the conflict with Iran is the best outcome for global stability. The war has already sent oil prices and inflation higher worldwide. Brent crude oil prices rose 3.9% on Thursday to $98.29 per barrel, recovering part of the nearly 9% drop seen the day before.
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