U.S. stocks retreat as investors question returns on AI spending

A week after record highs, U.S. stocks were retreating as investors questioned whether AI revenues would justify the spending. By the morning of October 15, the S&P 500 was more than 1% below its record and the Nasdaq about 4% below its peak—a pullback with potential consequences beyond technology portfolios.

Revenue growth and debt face scrutiny

One catalyst was a Financial Times report on Wednesday that Anthropic’s quarterly revenue growth had slowed, according to NBC News. The concern was about the pace of expansion, not a reported fall in revenue. NBC put Anthropic’s revenue at nearly $17 billion and said the company described itself as profitable.

At the same time, investors had begun selling bonds backing some data centers. Their concern, NBC reported, was that AI revenues might not cover the large sums borrowed to build those facilities. That puts the financing behind the expansion under scrutiny, alongside the share prices of companies expected to benefit from it.

Memory-chip competition added another source of unease. Investors were concerned that Chinese manufacturers could undermine Western rivals or produce enough memory to create an oversupply. Those fears sat alongside a global shortage of processing chips driven by the data-center buildout. The concerns involved different chip markets, rather than a single verdict on demand for all AI hardware.

Yardeni lowers his year-end target

On Thursday, economist Ed Yardeni cut his year-end S&P 500 target to 7,900 from 8,400. He cited greater investor caution about the AI trade, together with lingering concerns about inflation and higher interest rates. His revision reflected a combination of technology-investment doubts and broader economic pressures, rather than AI concerns alone.

The revised target still stood above the index’s level of about 7,600 in Thursday morning’s account. Yardeni was reducing his expectation for where stocks would finish the year, not forecasting a year-end level below that snapshot. The Nasdaq’s larger retreat from its peak also put technology shares at the center of the current pullback.

The spending cushion faces a test

The economic stakes extend beyond investors’ portfolios. NBC reported that tech-related spending accounted for nearly half of U.S. economic growth this year. That figure covers technology spending, not AI alone. It nevertheless shows how much the expansion has depended on investment in a sector now facing closer questions about its returns.

Technology-led stock gains have also supported a wealth effect: rising portfolio values have helped sustain consumer spending and, in turn, the job market. NBC described that support as part of an uneven economy, with lower- and middle-income households still struggling with persistent inflation and declining earnings despite sturdy overall growth.

There is still a case for resilience. Earlier this week, Wells Fargo CEO Charlie Scharf said AI infrastructure investment, high employment and consistent wage growth continued to outweigh risks from higher interest rates, oil prices and inflation. In his assessment, the buildout remained an economic support rather than a liability.

Thursday brought another pressure point: business inflation reached its highest rate since December 2022, according to Bureau of Labor Statistics figures cited by NBC. Citi analysts warned that higher rates, elevated energy prices, slow job growth and an equity sell-off—if it continues—pose downside risks to consumer spending.