U.S. stock markets closed predominantly lower on Thursday as artificial intelligence (AI) trade plummeted. Market participants remained deeply concerned about the sustainability of gigantic spending on AI data centers. Higher crude oil prices significantly dented investors’ sentiment. The S&P 500 and the Nasdaq Composite ended sharply lower while the Dow managed to post a marginal gain.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) gained 11.89 points to close at 52,867.98 after a choppy session. Notably, 20 components of the 30-stock index ended in positive territory, while 10 ended in negative territory. At the intraday low, the blue-chip index was down 347.71 points.
The tech-heavy Nasdaq Composite ended at 26,008.86, plunging 2.6% or 694 points on sharp decline in AI bigwigs. The tech-laden index suffered its worst single-day performance since early June. The S&P 500 tumbled 1.2% to finish at 7,663.43.
However, seven out of 11 sectors of the broad-market index ended in positive territory while four finished in negative territory. The Information Technology Select Sector SPDR (XLK) rose 1.7%. On the other hand, the Communication Services Select Sector SPDR (XLC) fell 1.1%.
The fear gauge CBOE Volatility Index (VIX) jumped 14.1% to 19.03. A total of 18.79 billion shares were traded on Thursday, higher than the last 20-session average of 17.19 billion. Advancers outnumbered decliners by a 1.01-to-1 ratio on the NYSE. On the Nasdaq, a 1.37-to-1 ratio favored declining issues.
AI Trade Plunges
Giant AI hyperscaler and social media behemoth Meta Platforms Inc. META reported strong third-quarter 2026 earnings results. Revenues increased 26% year over year to $64.6 billion, surpassing the Zacks Consensus Estimate of $63.4 billion. Adjusted earnings per share came in at $7.40, well above the Zacks Consensus Estimate of $6.52.
Advertisement revenues jumped 28% annually. Advertisement impressions and price per advertisement climbed in double digits year over year as AI continues to optimize its products. However, the most concerning fact is that META reported its first quarterly outflow of free cash flow in its history.
In the reported quarter, Meta platforms lost $2.12 billion of free cash flow compared with a positive free cash flow of $10.63 billion. In the third quarter, the company spent $34.91 billion on AI capex. META hiked the lower end of its 2026 AI capex guidance to $135-145 billion from $130-145 billion reported earlier.
META also plans to issue nonvoting shares to fund AI investments without diluting CEO Mark Zuckerberg’s control. Market participants remained highly concerned about the company’s solid financial condition. Consequently, stock price of META tumbled 7%.
Other AI infrastructure giants like NVIDIA Corp. NVDA, Advanced Micro Devices Inc. AMD and Micron Technology Inc. MU shed 4%, 8% and 6%, respectively. NVIDIA and Micron currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Spike in Crude Oil Prices
Crude oil prices reached a five-month high following the news that Iran-backed Houthis launched new strikes against Saudi Arabia’s oil infrastructure. As a result, the international benchmark - Brent crude futures - rose 4% to settle at $113.17 per barrel. The U.S. benchmark - West Texas Intermediate crude futures - rose 2.4% to settle at $99.47 per barrel.
Economic Data
The Conference Board reported that the leading indicator was unchanged in September after a 0.1% decline in August. The Zacks Consensus Estimate also remained flat.
The Department of Labor reported that initial claims decreased by 6,000 to 194,000 for the week ended Oct. 17, below the Zacks Consensus Estimate of 197,000. The previous week’s data was revised marginally upward to 200,000 from 199,000 reported earlier.
Continuing claims (those who have already received government aid and reported a week behind) increased 25,000 to 1.728 million for the week ended Oct. 10. The previous week's level was revised downward by 7,000 to 1,703,000 from 1,710,000 reported earlier.
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