Wall Street drops as AI stocks slide sharply again

Wall Street experienced a downturn on Tuesday as artificial-intelligence stocks led a broad market decline, reversing earlier gains and pulling major indices lower. The S&P 500 fell 1.1% after an initial 1% rise, while the Nasdaq composite dropped 1.9%, both moving further from recent record highs. AI-related companies, including those selling computer chips and memory essential for AI infrastructure, saw sharp losses—Micron Technology, for example, swung from a 4.2% gain to a 4.9% decline after a 9.9% surge the prior day. The stock’s tripled value this year has fueled speculation about overvaluation, with investors questioning whether AI stocks are due for a prolonged correction or simply a necessary market adjustment. The sell-off overshadowed benefits from declining oil prices, which fell 3.3% to $91.12 per barrel after briefly exceeding $98 the day before. Oil markets remain volatile amid hopes for a U.S.-Iran deal to reopen the Strait of Hormuz, which could stabilize global crude supplies. Airlines, which have faced soaring fuel costs, saw gains—Delta Air Lines rose 1.4% and American Airlines climbed 1.8%—as lower oil prices eased some pressure. However, airlines continue to raise fares to offset higher expenses, contributing to broader inflationary pressures on U.S. consumers. Inflation remains a key concern, with Treasury yields holding near 4.55% for the 10-year note, up from 3.97% before the Iran conflict escalated. Higher yields increase borrowing costs, including mortgage rates, which have recently reached their highest level in nine months. This could dampen construction of AI data centers, a critical driver of economic growth. Market participants widely expect the Federal Reserve to raise interest rates at least once more this year to combat inflation, though such a move risks slowing economic activity and further pressuring stock valuations. The Federal Reserve’s next inflation reports, due Wednesday and Thursday, will provide critical insights into consumer and wholesale price trends. Meanwhile, the U.S. job market’s strength suggests the central bank may prioritize tightening monetary policy, despite potential risks to markets. Investors are balancing optimism about AI-driven growth with caution over valuation bubbles and external economic pressures, including geopolitical tensions and rising borrowing costs.