The Sell-Off for AI Stars Worsens, While Oil Prices Keep Jumping

The sell-off for winners of the artificial-intelligence boom deepened on Friday, sending global stock markets lower as oil prices continued to surge due to the ongoing conflict with Iran.

The S&P 500 index fell 0.9% and is on track for its first losing week in the last three, marking only its third loss since March. Just a couple of days earlier, it had climbed within 0.5% of its all-time high.

The Dow Jones Industrial Average dropped 335 points, or 0.6%, with an hour remaining in trading, after oscillating between an early decline of 566 points and a modest gain. The Nasdaq composite fell 1.2%.

Chip stocks and other AI darlings once again took center stage in the volatile trading, as concerns over their astronomical prices and unsustainable demand for computer memory and processors due to the potentially lower profit and productivity generated by AI continue to weigh on investors' minds.

Nvidia was the heaviest weight on the S&P 500 after plummeting 2.1%. Applied Materials sank 4.9% to trim its surge for the year below 108%, while Micron Technology swung between a loss of 5.8% and a gain of 3.2% before rising 1.9%.

Earlier in the day, tech stocks worldwide tanked, with indexes plummeting 6.5% in Taipei, 4% in Tokyo, and 3% in Shanghai. Taiwan Semiconductor Manufacturing Co. led the decline, dropping 7.3%.

The South Korean stock market, dominated by tech giants Samsung Electronics and SK Hynix, remained closed for a holiday, offering a temporary reprieve from the AI-related fluctuations. However, Seoul's Kospi stock index had experienced wild swings in recent days, surging 6.2% and dropping 6.4% and 8.9% in separate instances.

The news of China's Moonshot startup releasing an open-sourced AI model, known as Kimi K3, further rattled the markets. This move could potentially disrupt demand for computer chips and other components, as it poses a low-cost alternative to big Western AI models like ChatGPT and OpenAI.

European stock indexes, which have a relatively smaller emphasis on AI and technology, experienced milder declines. Adding to the pressure on Wall Street was the drop in several stocks following their latest earnings reports, as companies are under pressure to deliver significant growth to justify their already substantial stock price increases.

Netflix slumped 7.2% after its earnings fell short of analysts' expectations, despite its profit exceeding expectations. Its future revenue and profit forecasts for the summer also failed to impress. Intuitive Surgical, a maker of robotic surgical systems, dropped 12.8% despite topping earnings expectations, citing concerns over slowing procedure growth due to the expiration of enhanced tax credits.

Elon Musk's SpaceX plummeted 4.1% and reached its lowest level since its stock began trading on the Nasdaq a month ago, amidst the AI-related market volatility and a recent aborted test flight of its mega Starship rocket.

The upward climb in oil prices pressured the stock market further, with the price of a barrel of Brent crude, the international standard, jumping 4.6% to settle at $88.10, up from roughly $76 a week ago.

The United States expanded its airstrike campaign against Iran, hitting more bridges and collapsing a tower at a key Iranian port, raising concerns about whether oil tankers can safely use the Strait of Hormuz to transport crude from the Persian Gulf to global customers.

High oil prices have contributed to increasing Treasury yields in the bond market, potentially slowing the economy and depressing stock prices and other investments. However, Treasury yields eased on Friday, with the 10-year yield falling to 4.54% from 4.57% late Thursday.

A report suggested that U.S. consumer sentiment is improving more than expected, while expectations for upcoming inflation have eased, which is crucial for the Federal Reserve as it considers raising interest rates to control inflation. If inflation expectations remain anchored, it may prevent a vicious cycle of inflation where people anticipate and act on higher inflation, exacerbating it.

Notably, the preliminary reading from the University of Michigan's survey for U.S. consumer sentiment hit its highest level since February, with much of the rise credited to declining gasoline prices. However, if gasoline prices rise again due to crude's recent surge, this improvement could reverse.

As the AI boom continues to unfold, investors and analysts will be closely monitoring the trajectory of AI stocks and the broader market's response to the escalating tension with Iran and the resulting oil price increase.

The ongoing uncertainty and fluctuations in the market underscore the complex interplay between the AI, oil, and global economic fronts and the need for a nuanced understanding of the interconnected factors driving these developments.