Technology stocks led a market decline Tuesday as fresh doubts about artificial intelligence growth momentum sent major indexes retreating from recent record highs, just days before major tech companies release their quarterly earnings.
The tech-heavy Nasdaq suffered the steepest losses, pulled down primarily by semiconductor companies that have climbed more than 40% this year. Meanwhile, the Dow Jones managed to hold onto small gains.
Market sentiment shifted after reports emerged that OpenAI failed to meet internal projections for weekly users and revenue, sparking questions about whether the AI company can justify its enormous investments in data center infrastructure, according to Wall Street Journal reporting.
Oracle stock dropped 3.7% as investors questioned the company’s cloud computing strategy, which heavily depends on its OpenAI partnership.
Major chip manufacturers also took significant hits, with Nvidia, AMD and Broadcom posting declines ranging from 2.2% to 4.7%. Nvidia-backed CoreWeave fell 4.8%.
“OpenAI missed their internal targets, but there’s lots of other players in the field,” explained Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “It would be a mistake to simply look at a single security or a single earnings event and try to extrapolate that into a broad market.”
The market faces a critical test this week as five members of the so-called “Magnificent Seven” AI-focused mega-cap companies prepare to announce results. Wednesday brings reports from Alphabet, Amazon, Meta Platforms and Microsoft, while Apple follows Thursday.
These companies represent approximately 44% of the S&P 500’s entire market value, according to Raymond James analysis.
In individual company news, General Motors exceeded profit expectations and raised its annual earnings outlook, benefiting from strong U.S. auto sales and an anticipated tariff refund. GM shares climbed 1.1%.
United Parcel Service stock fell 2.4% after the shipping company maintained its yearly revenue projections as rising fuel expenses counteracted operational improvements.
Coca-Cola surged 5.0% following stronger-than-expected quarterly results. The beverage company minimized concerns about elevated oil prices and increased its annual profit forecast.
Visa and Starbucks were scheduled to release earnings after market close.
By the closing bell, the Dow Jones Industrial Average remained essentially unchanged at 49,166.25, while the S&P 500 dropped 41.87 points, or 0.58%, to 7,132.04. The Nasdaq Composite fell 265.39 points, or 1.07%, to 24,621.71.
Among the S&P 500’s 11 major sectors, technology posted the largest decline while energy stocks recorded the biggest percentage gains.
The Federal Reserve began its monetary policy meeting, likely Federal Reserve Chair Jerome Powell’s final session in that role. Although officials are expected to maintain current interest rates Wednesday, investors will closely examine the policy statement and Powell’s press conference for insights on inflation risks tied to war-related energy price increases.
“We know that the Fed is effectively on hold,” Pursche noted. “If oil prices remain elevated, does that create an environment where energy-related inflation is not being viewed as transitory any longer, but rather as something that has a very much longer-term impact and might therefore force the Fed to raise rates?”
President Donald Trump expressed dissatisfaction with Iran’s latest peace proposal, citing delays in nuclear negotiations, which reduced hopes for a quick resolution to the conflict that has disrupted global markets and driven energy costs higher.
Adding pressure to oil-producing nations, the United Arab Emirates announced Tuesday its departure from OPEC.
Oil prices have jumped 53% above pre-war levels as disruptions continue through the vital Strait of Hormuz shipping lane. Brent crude futures exceeded $110 per barrel for the first time in three weeks.
Crude prices climbing above $100 per barrel have reignited inflation concerns and contributed to cautious market sentiment.
On the New York Stock Exchange, declining stocks outnumbered gainers by a 1.63-to-1 margin, with 136 stocks hitting new highs and 39 reaching new lows.
Nasdaq trading showed 1,686 advancing stocks versus 2,946 declining, with losers leading by a 1.75-to-1 ratio.
The S&P 500 recorded three new 52-week highs and 14 new lows, while the Nasdaq Composite saw 89 new highs and 85 new lows.
