The Nasdaq plummeted 4.2% on Friday, its worst session in 14 months, after a stronger-than-expected May jobs report triggered a jump in yields. Rising yields would make it more expensive for AI companies to maintain their spending binge. The downturn occurred as Washington discussed whether the government should take an ownership stake in individual AI companies, while Federal Reserve officials expressed concerns that AI-related investment is boosting demand for labor and equipment more than delivering productivity gains, heightening inflation risks above the Fed's target.
Semiconductor Sector Losses Hit Broadcom and Nvidia
Broadcom, which disturbed investors late Wednesday with its outlook for AI chips revenue, is now down more than 13% on the week. Nvidia tumbled 6.2% on Friday, falling below the $5 trillion market cap threshold. The PHLX Semiconductor Sector index dropped over 10%, with Marvell Technology, Micron Technology, Intel and Advanced Micro Devices (AMD) all falling.
Meta Considers Share Sale for AI Funding
Meta declined 5.5% on Friday. The Financial Times reported that the company is considering selling shares to help fund its massive AI build-out.
OpenAI CEO and Senator Discuss Government AI Ownership
NOTUS reported Thursday night that OpenAI CEO Sam Altman has discussed the idea of government ownership in AI companies with senior Trump officials, including directly with the president in early 2025 and in recent weeks with senior leaders. Earlier this week, Sen. Bernie Sanders (I-Vermont) proposed the U.S. government take a 50% ownership stake in AI companies.
Fed Officials Link AI Spending to Inflation Risks
Some Fed officials see clearer evidence of AI-related investment boosting demand for labor, equipment and infrastructure than they do of widespread productivity gains. Inflation risks look more immediate than any AI-related productivity benefits, especially as inflation remains stubbornly above the Fed's target.
Chip sector stocks are still well in the green year to date, even after this week's pullback, with Nvidia up 10%, and Broadcom up over 11%. The Nasdaq closed Friday up 10.6% on the year.
FAQ
What caused the Nasdaq to drop 4.2% on Friday?
The Nasdaq plummeted 4.2% on Friday after a stronger-than-expected May jobs report triggered a jump in yields, making it more expensive for AI companies to maintain their spending. The PHLX Semiconductor Sector index dropped over 10%, with Nvidia falling 6.2% and Broadcom down more than 13% for the week.
Why are Fed officials concerned about AI spending?
Some Fed officials see clearer evidence of AI-related investment boosting demand for labor, equipment and infrastructure than they do of widespread productivity gains. Inflation risks look more immediate than any AI-related productivity benefits, especially as inflation remains stubbornly above the Fed's target.
