Business 5 min read By Arthur Ellington
European shares slip on final day of month as AI worries weigh on tech
European stocks eased at the close of their best month since June as investor concern over heavy spending on artificial intelligence hit technology shares, while a wider sell-off on Wall Street added pressure.
European shares slipped at the end of their best month since June as investors grew uneasy about the scale of spending on artificial intelligence and whether it will deliver the profits that justify it. Technology stocks led the decline, and the mood was set by a steeper sell-off on Wall Street that had carried into Friday.
In the United States, the S&P 500 fell 1.8 per cent, its worst day since June, closing out a third straight losing week. The Nasdaq composite dropped 2.9 per cent, while the Dow Jones Industrial Average lost 572 points, or 1.1 per cent. The S&P 500 remained only 3.1 per cent below its all-time high, a level that has lifted the value of workers' 401(k) retirement accounts, but the market has become increasingly shaky ahead of Tuesday's midterm elections.
The weakness was concentrated in the chip and AI-linked names that had led the rally. Intel plunged 28.6 per cent, its worst drop since 1974, after the chipmaker forecast profit for the final three months of the year below analysts' expectations. Chief executive Lip-Bu Tan said the personal-computer industry continues to feel pressure, though Intel had reported a stronger profit for the latest quarter than expected. Nvidia, the chipmaker that became the emblem of the AI boom, fell 4.2 per cent and was the heaviest drag on the S&P 500.
Investor anxiety has been fuelled by the cost of the AI build-out. Amazon fell 1.4 per cent after reporting weaker summer profit than expected, and a measure of free cash flow showed the company had burned through $42.4 billion of cash over the previous 12 months, having spent $94.8 billion on property and equipment, mainly for artificial-intelligence investment. A day earlier, Alphabet's shares dropped more than 12 per cent, their worst day on record, after it told investors it had burned through more cash in the summer than in the spring, citing similar large investments in AI. Concern is growing over whether hundreds of billions of dollars in spending will generate enough profit and productivity to justify it.
Shares of computer chip companies and other beneficiaries of the data-centre build-out have also come under pressure, on concerns that high interest rates could slow further construction. Joe Tigay, portfolio manager at Equity Armor Investments, told clients in a note: « We're moving out of the hopes and dreams phase of the AI trade and into the show me phase. »
Cryptocurrency markets added to the gloom. Stocks tumbled after a hack on the world's biggest crypto exchange, Binance, which affected more than $6 billion worth of crypto. A U.S.-based blockchain intelligence firm said a North Korean unit was likely behind the attack. Bitcoin fell below $77,000 from more than $86,000 earlier in the month. Coinbase Global fell 10.6 per cent despite stronger-than-expected quarterly results, and Strategy, which says it owns about 4 per cent of the total bitcoin supply, dropped 7.8 per cent. Strategy also said its chief financial officer would resign next week for personal reasons.
Outside technology, the picture was more resilient. Many stocks rallied after reporting summer profits above forecasts, and nearly as many S&P 500 shares rose as fell. ExxonMobil climbed 2.2 per cent and Chevron added 1.8 per cent after the oil majors beat profit expectations. Mondelez International, the maker of Oreo cookies and Ritz crackers, rose 3.9 per cent on stronger-than-expected growth, and Colgate-Palmolive gained 2.3 per cent as higher prices helped it deliver better revenue and profit than analysts had predicted.
Across the index, the S&P 500 fell 140.32 points to 7,580.07. The Dow closed at 51,770.31 and the Nasdaq composite at 25,437.00. In the bond market, Treasury yields eased, a sign that investors were buying government debt in search of safety. The yield on the 10-year Treasury fell to 4.93 per cent from 4.98 per cent late on Thursday and from more than 5.30 per cent earlier in the month. Oil rose, with Brent crude up 2.4 per cent to $113.43 a barrel, near the top of its range since the war with Iran pushed oil prices and inflation higher.
In Asia, South Korea's Kospi dropped 3.5 per cent as AI worries hit its tech-heavy market, while Hong Kong's Hang Seng climbed 1.5 per cent. Japan's Nikkei 225 fell 2.1 per cent after the Bank of Japan kept interest rates steady, echoing decisions earlier in the week by the Federal Reserve and the European Central Bank. European indexes were mixed following sharper swings in Asia.
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