Stock markets closed another volatile week in the red, as investor sentiment soured on the very theme that has pushed markets to record highs: artificial intelligence (AI).
Attention shifted from earnings and revenue beats to the soaring cost of AI capital spending, casting doubts about future free cash flow—what analysts often call the “milk of Wall Street,” since it ultimately funds the dividends and buybacks that drive equity prices.
Higher oil prices and bond yields added pressure to the broader market.
For the week, the Dow Jones Industrial Average edged 0.38 percent lower, closing at 51,947. The S&P 500 dropped 0.61 percent to 7,411, near its weekly low touched on July 24. The Nasdaq Composite fared far worse, down 2.13 percent. The Russell 2000 fell 1 percent. The Chicago Board Options Exchange Volatility Index closed the week at 18.58, down 1 percent.
AI Capex Reckoning
The week’s turning point came on the afternoon of July 22, when Alphabet and Tesla released earnings that shook investor confidence in the market’s most closely watched companies—not because the earnings and revenue figures were weak, but because they highlighted the substantial costs required to build AI infrastructure and remain competitive in the AI race.
Alphabet beat market estimates on both the top and bottom lines, but its capital expenditure budget that’s north of $200 billion drew scrutiny from the analyst community, reviving investor concerns over the cost of AI and its impact on Big Tech’s free cash flows.
Tesla’s report was mixed—beating on revenue but missing on earnings—with its free cash flow turning negative alongside a $25 billion capital expenditure (capex) outlook.
Both stocks slumped on the following day, with Alphabet’s shares falling 6.89 percent and Tesla’s tumbling 14.52 percent, dragging the Nasdaq down 2.15 percent. The Dow Jones, S&P 500, and Russell 2000 fell 0.97 percent, 1.21 percent, and 0.84 percent, respectively, during the trading session.
On July 24, Intel, another tech giant, plunged following its earnings report the evening before, which blew past analyst estimates—another sign of how high the market’s bar has climbed.
Oil, Yields, and the Middle East
Compounding the tech sector’s troubles was a steady climb in bond yields, driven by renewed hostilities in the Middle East and a resilient U.S. labor market. The yield on the 10-year Treasury note rose from 4.57 percent on July 20 to above 4.70 percent on July 23—the highest level in about two weeks—as Brent crude pushed past the $100 mark and weekly jobless claims fell.
Higher oil prices and yields hit rate- and fuel-sensitive sectors hard. American Airlines shares fell more than 8 percent on July 23, Booking Holdings dropped 2.80 percent, and homebuilder Toll Brothers slid 1.63 percent.
Small caps, which are highly sensitive to rising yields, experienced some of the week’s sharpest declines, with the Russell 2000 falling 1.06 percent on July 22 alone.
Not every part of the market suffered from the oil spike, though: energy stocks benefited from higher crude prices, and defense stocks gained on expectations of higher spending tied to the widening conflict.
Bright Spots Amid the Selloff
Despite the volatility, the market also saw several positive developments. Archer Aviation rose nearly 20 percent on July 20 following the launch of a new AI aircraft platform. Domino’s Pizza gained 3.35 percent for the week on strong earnings.
July 21 saw a broader rebound in technology stocks, fueled by a wave of corporate news. Nvidia outlined its next-generation GPU lineup and disclosed a stake in Nebius Group, sending Nvidia shares up 1.97 percent and Nebius up 18.78 percent. Intel announced Fortinet as its first foundry client. General Motors boosted its full-year outlook, lifting shares 4.91 percent and boosting optimism for the auto sector, while 3M also upgraded its earnings guidance, lifting sentiment for industrial stocks as earnings season continues.
A Bar That Keeps Rising
The market roller coaster reflects investor confusion about the next direction of equities, as the price tag of AI keeps rising and valuations get stretched above historical levels.
It’s a market that has become more sensitive to negative developments than it was just months ago, according to Bret Kenwell, a U.S. investment analyst at eToro.
He told The Epoch Times that the next two weeks will be a key test for corporate earnings, not just in the technology sector, and that the results from Alphabet, Tesla, and Intel have sent a clear message: Companies that fail to meet Wall Street’s high expectations are facing market pressure.
Kenwell sees a sharp contrast with last quarter, when geopolitical uncertainty had lowered expectations and investors mainly sought reassurance that disruption abroad hadn’t derailed corporate America.
“Today, after the market’s run to record highs, good results are not always good enough,” he said. “Banks have posted strong numbers, while AI supply-chain leaders such as ASML, Taiwan Semiconductor, and Samsung delivered standout results. Even so, several of those stocks saw muted rallies or outright declines.”
