Major stock indexes fell sharply Friday after a strong jobs report set the stage for the Federal Reserve to hike rates, rattling shares of companies that are involved in sky-high artificial intelligence investments.
The threat of higher interest rates often sends stocks lower because borrowing money, especially the large sums that AI firms are borrowing, becomes more expensive.
The Nasdaq 100, which tracks the largest nonfinancial tech stocks traded on the Nasdaq stock exchange, plunged 4.7%, its worst day since April 2025, capping its worst week since March 2025.
Leading that index lower were shares of AI-linked Marvell, Arm, Micron, SanDisk, Intel, AMD and Qualcomm, which all declined more than 10%.
The S&P 500 fell 2.6% and the Dow Jones Industrial Average fell 694 points. U.S. government bond yields, which influence interest rates paid by consumers, rose to about their highest levels since the end of May. Friday was the S&P 500’s worst single-day drop since October.
Still, major indexes remain near record highs. The S&P 500 is still holding on to gains of about 8% for the year, while the Nasdaq is still up almost 10% year-to-date.
Friday’s rout came a week before SpaceX shares are set to begin trading on the Nasdaq, which will test Wall Street’s appetite for big AI plays. Elon Musk’s company, which has AI and social media businesses alongside its core space operation, is set to raise a record $75 billion in new money at a valuation of more than $1.7 trillion.
That offering will be the first of three trillion-dollar IPOs expected this year. AI firms Anthropic and OpenAI are expected to go public later this year, seeking tens of billions of dollars in cash to continue their expansive investments.
Experts have raised many questions about the underlying fundamentals of these companies, fearing that they could unsettle the market and retirement accounts alike.
Selling accelerated in late afternoon after the Financial Times reported that Facebook and Instagram owner Meta Platforms was “considering raising tens of billions of dollars in a stock offering” to bolster its AI offerings. Meta shares declined more than 6%. The company did not immediately respond to a request for comment.
Friday’s pain hit several major tech firms. Broadcom, which triggered selling in tech stocks earlier in the week after a lackluster earnings report, fell 7%, bringing its total loss this week to more than 13%.
Nvidia, the largest publicly traded company in the world, slid about 6%. Oracle shares lost 10% of their value and IBM dropped 7%, as of midday trading.
Shares of construction equipment companies that help build AI data centers fell, too. Shares of Caterpillar, a large Dow index component, dropped almost 4%.
Investors are rattled at the likelihood that the Federal Reserve could hike rates before the end of the year. Currently, the futures market is projecting a rate hike by December with a 60% chance that rates rise by October’s Fed meeting.
“We now expect the Fed to reverse 2025’s three ‘insurance’ rate cuts at sequential meetings, beginning in December,” BNP Paribas chief U.S. economist James Egelhof said after the jobs report was issued.
Kevin Hassett, the director of the National Economic Council at the White House, said earlier Friday that markets are “terribly wrong” to judge that the strong jobs report means higher interest rates.
Hassett added, in an interview on Bloomberg Television, that the ongoing energy shock from the war with Iran is not likely to cause widespread inflation.
He said that his advice to the Federal Reserve and newly installed Chairman Kevin Warsh would be to “watch the numbers, because what you’re going to see is that with a big supply-side boom, you could have high growth without having runaway inflation.”