NEW YORK — Artificial intelligence stocks performed well on Wednesday as former Wall Street superstars continue to come under scrutiny over their success and drag down U.S. markets.
After oscillating between modest gains and a 1.1% decline, the S&P 500 fell 1%, heading for its first straight decline in three weeks. As of 12:52 p.m. ET, the Dow Jones Industrial Average was down 627 points, or 1.2%, and the Nasdaq Composite Index was down 1.3%.
Wall Street has been volatile since last week, when AI stocks went from record highs to abrupt declines. One concern is that prices are simply getting too high and rising too fast because of AI mania. The question now is whether the drop in stock prices has dispelled the excess optimism built into them, or whether this is just the beginning of a long economic downturn.
Super Micro Computer, which sells AI servers, fell 18.4% late Tuesday after announcing plans to raise $7 billion in cash by selling stock and convertible preferred stock. Such moves raise the most money for companies when stock prices are high and can dilute the ownership of existing shareholders.
Micron Technology has returned to a modest 4% loss after an initial loss of nearly 4%. The stock is coming off a wild ride that saw it drop 7.7% last Thursday, drop another 13.3% on Friday, and rise 9.9% on Monday. Despite all the volatility, the computer memory maker’s stock is still up 214.3% for the year so far.
Stocks of companies that provide products and services useful in semiconductor manufacturing were the strongest force pushing the S&P 500 index higher in the morning, but their gains narrowed as the day progressed. For example, KLA pared its initial 7.7% gain to 0.6%.
Some of the pressure on AI stocks may be coming from investors withdrawing money in preparation for the high-profile debuts of several AI giants on U.S. stock exchanges. SpaceX’s initial public offering, for example, could take place later this week.
The market volatility came despite an update on U.S. inflation before the start of trading, which sent stocks slightly higher.
The report said inflation had accelerated to its highest level in three years, which was about the same as economists expected. Meanwhile, the rise in a key fundamental measure of inflation was not as bad as economists had expected from April to May.
This led to a slight decline in U.S. Treasury yields in the bond market, relieving some of the pressure that had built up in the stock market.
High bond yields can slow down the overall economy and reduce the prices of all types of investments, including stocks and cryptocurrencies. These have particularly hurt investments that are considered the most expensive, leading some critics to call AI an overinflated investment bubble.
The yield on the 10-year U.S. Treasury note fell to 4.54% from near 4.55% in the morning. The yield on the two-year Treasury note, which more accurately reflects expectations about what the Federal Reserve will do with overnight interest rates, was flat at 4.13%.
Traders have recently increased their view that the Fed will need to raise its key interest rate at least once this year, given high inflation and a strong U.S. job market. Wednesday’s inflation update caused them to lower their bets just a little, according to CME Group data.
Oil prices have continued to rise and fall on hopes that the United States and Iran can reach a deal to reopen the Strait of Hormuz to tanker traffic, adding to the uncertainty.
Brent crude oil prices rose 2.7% to $93.89 a barrel after President Donald Trump warned Iran would “pay a price” for stalling war talks between the two countries.
In overseas stock markets, European indexes narrowed their decline due to the sharp decline in Asia.
South Korea’s Kospi fell 4.5%, hit by losses at tech giants Samsung Electronics and SK Hynix.
Tokyo’s Nikkei stock average fell 1.9% after data showed Japan’s producer price index, a measure of wholesale-level prices, rose at the fastest pace in more than three years in May. Shares of SoftBank Group, a technology and communications giant focused on AI, fell 8.3%.
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AP Business Writers Chan Ho-him and Matt Ott contributed to this report.
Written by Stan Cho
