Nasdaq tumbles 750 points as investors worry over rising AI debt

The tech-heavy Nasdaq Composite dropped as much as 2.8% on Thursday as investors grew anxious over the high debt loads used to fund artificial intelligence infrastructure.

The Nasdaq Composite Index experienced a sharp sell-off, falling 750 points at its session low before closing 694 points lower at 26,009. CBS News reported that the decline was driven by concerns over the capital-intensive nature of the AI industry, where companies are relying heavily on debt and equity investors to fund massive spending on data centers and chips. While the tech-heavy index tumbled, the Dow Jones Industrial Average managed a small gain of less than 0.1%, highlighting a divergence in the market.

Major technology firms saw significant losses during the rout. Meta Platforms shares fell 7% after its quarterly profit failed to meet expectations, despite reporting strong revenue. Euronews reported that the company plans to issue non-voting shares to help fund further AI investments. Meanwhile, Nvidia, the largest company on Wall Street by market value, dropped 4.4%, acting as the primary drag on the S&P 500. Tesla also saw a 3.1% decline after its revenue figures came in weaker than analysts had forecasted.

Financial analysts are increasingly questioning if the massive investments in AI will yield expected profits. Adam Crisafulli of Vital Knowledge noted that capital expenditure is significantly outpacing operating cash flow, making the industry dependent on the "largess" of investors. Al Jazeera noted that the sell-off has sparked a debate among market participants over whether the artificial intelligence sector has entered a bubble. Rising oil prices, which saw Brent crude climb above $113 per barrel due to regional conflict, added further pressure to the global markets.

The scale of required investment is unprecedented, according to estimates cited by CBS News. The Brookings Institution projects that developing AI infrastructure could cost more than $10 trillion between 2025 and 2032. Economist Carl Weinberg stated this would represent the largest investment tide in U.S. history, surpassing both the 19th-century railroad construction and the more recent dot-com boom.

Background

AI-related stocks have recently experienced a years-long frenzy, driving share prices to record highs even as borrowing costs for building data centers and purchasing chips have become increasingly expensive.