AI Bubble Fears Wipe 1.4% Off Nasdaq as OpenAI Revenue Doubts Spook Investors
US tech stocks tumbled as fears that the artificial intelligence boom may be a bubble spread through markets, while rising bond yields and oil prices added to the pressure.
The Nasdaq 100 fell 1.4% on Tuesday, led by a sharp selloff in big technology companies after a warning about OpenAI's revenue shook confidence in artificial intelligence stocks, with losses spreading quickly across the market [257446]. Investors worried that OpenAI, the maker of ChatGPT, may earn less than expected, and that concern hit other AI bets including chipmakers [257446]. The selloff pulled down broad US equity benchmarks because technology giants carry great weight in these indexes, so their losses drag the whole market down [257446]. Investors now question whether the AI boom is a bubble — a market where prices rise far above real value — and when a bubble bursts, prices can fall sharply [257446].
The tech decline came as US stocks fell for a second straight day, with the Nasdaq Composite leading losses among major indexes after a new attack on an oil tanker pushed oil prices higher and unsettled investors [257361]. Oil prices rose sharply, with Brent crude, the international benchmark, climbing 5% to $105.3 a barrel, driven by fears of worsening conflict in the Middle East and a possible production shutdown from a hurricane near the US coast [257172]. The jump triggered heavy selling in global bond and stock markets, and reports said the White House has asked for options for more strikes against Iran [257172].
At the same time, the US dollar strengthened as Treasury yields rose, with investors now seeing inflation risks leaning to the upside [257377]. Investors are demanding higher returns on US government bonds, blaming inflation and the conflict with Iran, but a bigger issue is that higher bond yields mean borrowing money now costs more for everyone — families, businesses, and the government itself [257343].
The pressure eased somewhat after an auction of US government debt drew solid demand on Wednesday, calming investors who had worried that weak demand would push borrowing costs higher [257358]. US government bonds held steady after the strong auction of 10-year Treasury notes, easing concerns about weak demand for US debt, even as French, Italian and UK government bonds came under pressure during a day of volatile trading [256734]. A "Treasury auction" is the process where the US government sells its bonds to investors, and strong demand at Wednesday's auction signaled that buyers still trust US debt [256734].
Meanwhile, stocks fell from their recent record levels as traders took profits, and Brent crude oil prices slipped, reflecting softer demand expectations [257358]. Large-cap stocks have held up well despite recent market swings, but rising Treasury yields have made bonds more attractive, pulling money away from smaller companies, and small-cap stocks are struggling under the weight of higher interest rates [257317]. Some analysts say this weakness may soon create a buying opportunity [257317].
Billionaire investor Ray Dalio, founder of the world's largest hedge fund, warned that the stock market is losing its protection against rising bond yields [257329]. Strong company earnings have kept stock prices stable even as bond yields climb, but Dalio says this cushion is shrinking, and he warns that free cash flow — the cash a company has left after paying its expenses — could weaken, leaving stocks with less support [257329]. When bond yields rise, bonds become more attractive to investors, and stocks usually need strong earnings to compete; if earnings fall, investors may pull money out of stocks [257329].