AI Stocks Dip: Wall Street Pulls Back from Record Highs
Wall Street edged lower on Tuesday, pulling back from recent record highs as investor enthusiasm for artificial intelligence technology showed signs of cooling. The S&P 500 dipped 0.4%, marking its third consecutive modest loss since achieving an all-time high just last week. While the Dow Jones Industrial Average managed a slight gain of less than 0.1%, up 8 points by late morning, the tech-heavy Nasdaq composite fell 1%, reflecting the broader caution.
The primary drag on the market was Nvidia, whose advanced chips are foundational to much of the current AI boom, with its stock sinking 2%. Another prominent AI beneficiary, Palantir Technologies, experienced the largest loss within the S&P 500, dropping 5.7%. This decline came as bets against its stock, known as “short interest,” have sharply escalated among investors this year. According to S3 Partners, only Meta Platforms, the parent company of Facebook and Instagram, has seen a larger increase in such bearish wagers. Meta itself finished down 1.7%. These movements underscore a growing chorus of criticism that stock prices, particularly in the tech sector, have climbed too high, too fast, becoming excessively expensive.
In contrast, some companies managed to defy the downward trend by delivering strong financial results. Palo Alto Networks, a cybersecurity firm, saw its shares climb 4.7% after reporting earnings and revenue for its latest quarter that surpassed analysts’ expectations. The company also provided optimistic forecasts for its upcoming fiscal year, further boosting investor confidence. Home Depot’s 3.1% rise was a key factor in the Dow’s relative resilience compared to other indexes. Despite reporting quarterly results that were slightly below analyst predictions, the retail giant still achieved revenue growth and reaffirmed its full-year revenue and profit forecasts. Other major retailers, including Lowe’s and Target on Wednesday, and Walmart and Ross Stores on Thursday, are slated to release their latest financial updates in the coming days.
The week’s most anticipated event for Wall Street is scheduled for Friday, when Federal Reserve Chair Jerome Powell is set to deliver a pivotal speech in Jackson Hole, Wyoming. This annual gathering has historically been the platform for significant Fed policy announcements, and market participants are eagerly hoping Powell might signal imminent interest rate cuts. The Fed has maintained steady interest rates throughout the year, largely due to concerns that potential tariffs imposed by former President Donald Trump could fuel inflation. However, a surprisingly weak report on national job growth has recently shifted market expectations, leading many traders to anticipate a rate cut as early as the Fed’s next meeting in September to stimulate the economy. As a reflection of these expectations, Treasury yields have notably declined, with the yield on the 10-year Treasury easing to 4.31% from 4.34% on Monday.
Despite the prevailing optimism for rate cuts, strategists at Bank of America have cautioned that Powell’s speech might not be as dovish as the market anticipates. They suggest he could remain noncommittal, potentially even discussing the possibility of “stagflation”—a challenging economic scenario where stagnation coexists with persistent high inflation, a situation for which the Fed lacks readily effective tools.
In other notable corporate news, Tegna shares rose 4.1% following an announcement that Nexstar Media Group plans to acquire the owner of 64 television stations for $22 per share in cash, valuing the deal at $6.2 billion including debt. Nexstar, which owns The CW network and various local broadcasters, saw its stock inch up 0.4%. The companies expressed confidence that the merger would broaden their reach and enhance their competitive standing against both Big Tech and traditional media conglomerates. Conversely, biopharmaceutical company Viking Therapeutics experienced a sharp decline of 43% after releasing less-than-ideal results from a clinical trial of its oral tablet, which is being developed to treat obesity and other metabolic disorders.
Globally, stock markets presented a mixed picture, with indexes in Europe generally rising, while those in Asia saw modest declines. Tokyo’s Nikkei 225 index slipped 0.4%, partly due to a 4% drop in market heavyweight SoftBank Group Corp., which announced a $2 billion stake acquisition in U.S. chipmaker Intel. Curiously, Intel’s stock climbed 7.7%, bolstered by confirmation from U.S. Commerce Secretary Howard Lutnick on CNBC that the Trump administration might also consider taking an ownership stake in the company.