Worries that heavy investments in AI infrastructure may be taking too long to pay off rattled global markets this month and led to doubts about companies at the center of Wall Street’s rally in recent years.
“There were worries that Amazon’s spending was just moonshot spending, that it’s irresponsible spending, and (CEO) Andy Jassy just put those fears to bed,” said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma.
The PHLX chip index gained, but it remains down over 20% from its June 22 record high close. Apple tumbled after warning that supply constraints would hurt growth, adding to worries that recent iPhone price hikes would weaken consumer demand.
Apple’s slump kept the S&P 500 technology index down, despite gains in other tech stocks. Microsoft added to gains after surging over 15% on Thursday in its biggest one-day percentage gain since 2008 after it forecast stronger-than-expected cloud growth. Monolithic Power Systems rose after forecasting third-quarter revenue above estimates.
According to preliminary data, Analysts on average expect S&P 500 aggregate second-quarter earnings to soar 48% from a year ago, with AI-related stocks accounting for much of that growth, according to LSEG I/B/E/S. Strong earnings forecasts and a recent decline in share prices have left the S&P 500 trading at about 20 times expected earnings, just above its 10-year average of 19 times, according to LSEG data.
The S&P 500 is near flat in July while the Nasdaq has fallen about 3%. Both indexes are up about 9% in 2026.
The S&P 500 equal-weighted index was on track for its fourth straight month of gains, thanks to its limited exposure to heavyweight AI-related stocks that have underperformed for much of that time. Three Federal Reserve officials who dissented at the Fed’s policy meeting this week in favor of an interest rate hike called on Friday for immediate action to bring inflation down to the U.S. central bank’s 2% target.
The 2-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 5.4 basis points to 4.28% but is down slightly for the week. Markets are pricing in a 65% chance of a rate hike at the Fed’s September meeting, according to CME FedWatch, down from 82% a week ago but up slightly from 63% on Thursday. Domain registrar GoDaddy dropped after narrowing its annual revenue forecast.
