S&P 500 Rebounds: AI Spending Triggers Tech Sell-Off & Market Volatility

The S&P 500 rebounded sharply on Friday, rising 1.97% for its best single-day performance since May, after a week of volatility sparked by concerns over the escalating costs associated with artificial intelligence development. The Nasdaq Composite also saw a significant surge, climbing 2.18%.

However, Friday’s gains masked continued selling pressure in many tech stocks. Amazon, the world’s fifth-largest public company, experienced a 5.58% drop after announcing plans to invest $200 billion in the coming year, primarily within its Amazon Web Services cloud division. Since Monday, Amazon’s stock has plummeted 12%, erasing over $310 billion in market value.

Similar declines were observed at Microsoft and Meta, both of which have unveiled plans for hundreds of billions of dollars in AI-related spending this year. Collectively, Amazon, Microsoft, Meta, and Alphabet are poised to invest approximately $650 billion to expand their data center and AI capabilities, resulting in a combined loss of nearly $1 trillion in market value over the past five trading days.

Despite the weekly losses for the S&P 500 and Nasdaq Composite, certain sectors experienced gains. Industrial stocks, such as Caterpillar, and energy firms benefited from expectations of increased demand related to data center construction. These sectors were among the top performers on Friday, alongside chipmakers.

Nvidia, a leading AI chipmaker, saw its shares boom, rising nearly 8% and pushing its market capitalization above $4.5 trillion. Nvidia CEO Jensen Huang, who earlier in the week dismissed the sell-off as “the most illogical thing in the world,” reiterated his confidence in the sector during a CNBC interview on Friday, arguing that the substantial investment levels are justified by the “incredibly high” demand for AI applications.

Apple, however, has largely avoided the recent AI-driven sell-offs, with its stock rising 7% this week. This represents attributed to the company’s reliance on purchasing cloud computing capacity from other firms rather than building its own data centers.

The market turmoil began on Tuesday following an announcement from AI developer Anthropic regarding the capabilities of AI agents to perform advanced tasks like data analytics. This triggered a wave of selling among investors in software companies and firms specializing in data analysis across various industries, including real estate, human resources, and banking, fueled by fears that AI agents could disrupt their businesses.

Private credit firms, which hold significant stakes in many software and data companies, also experienced declines this week as they grapple with the challenge of raising the substantial capital required for AI and tech expansion.

The Dow Jones Industrial Average also reached a milestone on Friday, surpassing 50,000 for the first time. While this achievement garnered attention, analysts note that the Dow’s limited composition of only 30 stocks makes it a less comprehensive indicator of overall market strength compared to the S&P 500.

President Donald Trump acknowledged the Dow’s milestone on his Truth Social platform, posting “CONGRATULATIONS AMERICA!” However, the S&P 500, a more representative measure of the market, remains up less than 1% for the year.

Volatility also extended to the cryptocurrency market, with the value of Bitcoin swinging nearly $10,000 in the last 24 hours. The token plunged to nearly $60,000 late Thursday before rebounding to over $70,000 by late Friday. However, analysts caution that cryptocurrency often operates independently of mainstream assets like stocks and bonds.

UBS Global Wealth Management chief economist Paul Donovan wrote on Friday, “Crypto is not an asset, and is held by a tiny portion of society. It’s unlikely that consumer behavior will change because of recent market moves.”

Small and medium-sized stocks outperformed their larger counterparts on Friday, soaring almost 4% on the Russell 2000 index. Bank of America analysts suggested that these smaller stocks would continue to benefit as long as former President Trump’s approval ratings remain low, stating, “We are long Main St., short Wall St.”