On Thursday, stocks plummeted as the market punished businesses perceived as possible losers from artificial intelligence technology.
It is still close to its all-time high achieved late last month, but the S&P 500 fell 1.6% for its second-worst day since Thanksgiving. The Nasdaq composite sank 2% and the Dow Jones Industrial Average experienced a 1.3% decline of 669 points.
AppLovin posted a higher profit for the most recent quarter than analysts had anticipated, but it still lost over a fifth of its value and fell 19.7%. It has faced criticism, like other software companies, from concerns that AI might disrupt its market and drastically alter how people use the internet.
In an analyst conference call, AppLovin CEO Adam Foroughi dismissed the worries, stating that metrics indicate his business is doing well. According to him, “there is a real disconnect between the sentiment of the market and the reality of our business.”
Nonetheless, its stock’s loss for the first half of the year increased to 32.2% as of the day.
Cisco Systems fell 12.3% despite exceeding analysts’ earnings and revenue projections for the previous quarter. The tech behemoth stated that it may make less profit per $1 of revenue in the current quarter than it did in the previous quarter.
That might be a sign of rising computer memory costs that everyone must pay in the midst of the AI rush, according to analysts.
More generally, concerns are growing about whether companies investing substantially in AI will see sufficient productivity and revenues to justify the expenditures.
The concerns about AI have had an especially negative impact on software equities, but they are also affecting other sectors and industries. For instance, strategists at UBS believe that “AI disruption risk” would drive down bond prices, even if the threat is yet unclear.
According to a paper by strategists led by Matthew Mish, “the timing of AI disruption remains uncertain, and the fog of uncertainty is unlikely to fade away quickly.”
They anticipate that the AI danger will lead to a rise in defaults in the junk bond and other low-rated markets. That could damage even strong, financially solid companies by making borrowing more expensive, especially Big Tech companies that have been aggressively borrowing to fund their AI developments. That spending has contributed significantly to the AI frenzy.
According to the UBS strategists, such ripple effects “could be significant, potentially undercutting capital spending, investment plans, and ultimately the AI boom itself” in a less likely but extremely harmful scenario.
Some of the businesses that serve clients with large AI budgets are profiting in the interim.
For instance, Equinix surged 10.4% despite the fact that the digital infrastructure company’s most recent quarter earnings did not meet analyst forecasts. CEO Adaire Fox-Martin stated that “demand for our solutions has never been higher” after the company released revenue projections for 2026 that exceeded analysts’ expectations.
After revealing a higher-than-expected earnings for the most recent quarter, McDonald’s saw a 2.7% increase outside of the IT sector. The restaurant company cited actions to increase its affordability and value, such as lowering the cost of certain combination meals in the United States in September.
Meanwhile, Walmart’s 3.8% rise was the most powerful single force propelling the S&P 500 higher. It recovered losses from earlier in the week after a report suggested spending at US retailers halted in December.
The S&P 500 dropped 108.71 points to 6,832.76 overall. The Nasdaq composite fell 469.32 to 22,597.15, while the Dow Jones Industrial Average fell 669.42 to 49,451.98.
Treasury yields decreased in the bond market as investors sought for safer locations to keep their money. Additionally, according to a report, a little more Americans applied for unemployment insurance last week than analysts had predicted.
However, the fact that the figure was lower than the previous week’s suggests that the rate of layoffs may be improving. Additionally, it came after a surprise positive labor market data released on Wednesday, which stated that the country’s jobless rate decreased last month.
Even while President Donald Trump continues to vigorously and vocally advocate for lower interest rates, an improving employment market may pressure the Fed to maintain current rates and put any rate cuts on hold. The economy may benefit from reduced rates, but inflation may worsen as a result.
The stakes are raised for Friday’s consumer-level inflation report. According to economists, inflation decreased to 2.5% last month from 2.7% in December.
According to a separate survey released on Thursday, yields were also impacted by the fact that sales of previously inhabited homes fell more than analysts had predicted last month.
Late on Wednesday, the yield on the 10-year Treasury dropped from 4.18% to 4.10%.
South Korea’s Kospi surged 3.1% higher on international stock markets as a result of increases in tech firms such as SK Hynix and Samsung Electronics.
In Europe and some Asian markets, the actions were more subdued. France’s CAC 40 increased 0.3%, while Hong Kong’s Hang Seng sank 0.9%.
