Nasdaq plunges as consumer sentiment nears historic lows, panic over AI spending mounts

Stocks tumbled on Friday as consumer sentiment plunged near all-time lows and investors panicked over AI spending – hammering tech stocks in their worst week since April.

The tech-heavy Nasdaq dropped 0.2% Friday, closing the week down 3% – its worst drop since the April launch of President Trump’s “Liberation Day” tariffs sparked a massive sell-off. 

Concerns about the government shutdown – which entered its 38th day on Friday, setting a new record — sent monthly consumer sentiment to its lowest level in over three years.

The reading of 50.3 marked a drop of 6.2% on the month and about 30% from this time last year – near the worst-ever level for consumer sentiment, according to data released by the University of Michigan on Friday.

Along with worries about the shutdown, broader economic concerns regarding inflation remained top of mind for many Americans. Prices on everything from a cup of coffee and kids’ toys to living room furniture and Amazon deals have soared.

“Consumers perceive pressure on their personal finances from multiple directions,” Joanne Hsu, director of the University of Michigan survey, told Bloomberg. “Consumers also anticipate that labor markets will continue to weaken in the future and expect to be personally affected.”

The only time that consumer confidence in their finances and the economy has been worse came in June 2022, during a historic rise in inflation.

Meanwhile, investors have been panicking over massive AI spending, questioning whether stocks have been overvalued – reminiscent of the dot-com bubble in the late 1990s.

The worst-performing stock in the S&P 500 this week was Super Micro Computer, which sells equipment for AI data centers. The stock fell about 25% this week.

More than $1 trillion in market value was wiped from a drop in shares this week of Microsoft, Nvidia, AMD, Palantir, Oracle and Meta.

AMD, Nvidia and Oracle each fell about 10% this week.

Shares in Meta, which owns Facebook, Instagram and WhatsApp, dipped about 6% during the same timeframe, while Microsoft tumbled roughly 5%.

The tech sell-off started earlier this week, after software giant Palantir reported earnings on Tuesday. 

Although Palantir beat earnings across the top and bottom lines, analysts raised concerns about whether the company’s valuation was inflated – and “Big Short” investor Michael Burry revealed a short position in the firm.

Alex Karp, chief executive of Palantir, quickly ripped into short selling as “market manipulation.”

While his company’s stock jumped about 1.5% Friday, it was down more than 13% this week.

Nvidia CEO Jensen Huang fueled the panic over artificial intelligence investments after he told the Financial Times that China would likely “win the AI race.”

Although he later tried to backpedal, writing that “China is nanoseconds behind America in AI,” investors worried that huge investments into the new tech may not pay off.

While Nasdaq ended the week on a low note, the Dow Jones Industrial Average and S&P 500 saw small upticks Friday, with the Dow rising about 75 points, or nearly 0.2%, and the S&P going up around 0.1%.

Earlier this week, Trump touted his economic agenda after Election Day wins by New York City’s socialist Mayor-elect Zohran Mamdani and Dem gubernatorial candidates Mikie Sherrill in New Jersey and Abigail Spanberger in Virginia.

When asked on Friday whether he was concerned about an AI bubble, Trump replied, “No, I love AI.”

“We’re leading China, we’re leading the world,” he said.

Some tech stocks saw smaller declines this week.

Alphabet was down less than 1%, while Apple was set to end the week roughly flat.