Nasdaq falls 694 points as investors reassess AI debt burden

The Nasdaq Composite Index closed 694 points lower on Thursday, a drop of 2.8 percent, as investors grew wary of the mounting debt artificial intelligence companies are accumulating to fund data center construction. The broader S&P 500 index declined 1.2 percent, while the Dow Jones Industrial Average managed a slight gain of less than 0.1 percent.

Wall Street analysts point to the gap between capital expenditure and operating cash flow as the primary driver of the sell-off. Adam Crisafulli, head of Vital Knowledge, noted in a research note that AI growth relies on heavy capital spending that currently outpaces cash flow. Consequently, companies are dependent on equity and debt investors to finance their operations, yet those markets are becoming less accommodating. Crisafulli added that slowing debt issuance in a tightening credit environment could impede the ability of firms to complete their AI infrastructure buildouts.

The scale of this financial commitment is historic. The Brookings Institution estimates that developing AI infrastructure between 2025 and 2032 will cost more than $10 trillion. Carl Weinberg, chief economist at High Frequency Economics, described this as the largest tide of investment in U.S. history, surpassing both the 19th-century railroad construction and the dot-com boom. Despite many major AI players remaining highly profitable, investors are reassessing these massive costs as stock prices continue to rise.

Earnings reports from major technology firms contributed to the market's volatility. Meta Platforms, which is developing its Muse AI agent, saw shares fall 7 percent after reporting revenue that exceeded estimates but profit that fell short. Tesla shares slipped 3.1 percent after the electric vehicle company reported stronger-than-expected summer profits but weaker revenue than analysts had projected.

Oil prices also weighed on sentiment due to concerns over escalating conflict in Iran. West Texas Intermediate crude, the U.S. benchmark, traded at $99.21 a barrel, up 2.1 percent. Brent crude, the international standard, traded at approximately $113 a barrel, up 3.7 percent.