Investors worry massive AI spending as Nasdaq dives 751 points, a 750-point-plus drop

AI investment faces scrutiny

Investors are increasingly concerned about the debt AI companies are taking on to fund data center projects and whether future profits will justify the expense, according to Wall Street analysts. Adam Crisafulli, head of Vital Knowledge, said AI growth relies on investment that is far exceeding companies’ operating cash flow. In a research note, he said financing markets have lately become less accommodating.

Crisafulli added that slower debt issuance amid tighter credit conditions could make it harder for companies to fund AI infrastructure. The Brookings Institution estimates development of that infrastructure will cost more than $10 trillion between 2025 and 2032.

A historic scale of spending

That projected investment would be the largest in U.S. history, according to Carl Weinberg, chief economist at High Frequency Economics. He said it would dwarf spending on 19th-century railroads and the dot-com boom.

Many leading companies behind the AI boom remain highly profitable. Even so, investors are reconsidering the scale of costs as company share prices rise.

Mixed earnings pressure shares

Thursday’s market decline came as companies reported mixed results. Meta Platforms fell 7.4% after revenue exceeded estimates but profit came in below expectations. Tesla shares lost 2.1%. The electric vehicle maker reported stronger-than-expected summer profits, but revenue was weaker than analysts had expected.

Oil prices add to concerns

Higher oil prices also weighed on stocks amid concerns about an escalation in the war in Iran. West Texas Intermediate, the U.S. benchmark, traded at $99.44 a barrel, up 2.4%. Brent crude, the international standard, traded at $113 a barrel, a 3.9% increase.