Stock market wobbles as AI investment returns come under scrutiny

U.S. stocks declined sharply this week amid investor concerns about profitability of massive artificial intelligence spending.

One week after reaching record highs, U.S. stock markets faced pressure Thursday as investors questioned whether trillions in AI investments would generate adequate returns. The S&P 500 fell more than 1% from its peak, while the Nasdaq declined approximately 4% from last week's record.

Concerns centered on slowing revenue growth at AI company Anthropic and potential competition from Chinese memory chip manufacturers. Investors also sold bonds backing data centers, fearing AI revenues would not cover massive borrowing used to finance construction. Economist Ed Yardeni lowered his year-end S&P 500 target to 7,900 from 8,400.

Tech-driven economic growth, which accounts for nearly half of U.S. growth this year, could slow if stock declines persist. While some economists cite strong employment and wage growth as counterbalancing factors, others warn that consumer spending faces headwinds from persistent inflation and elevated interest rates.