AI's Ripple Effect: Tech Stocks Take a Hit

The stock market took a tumble recently, with tech companies feeling the heat. Investors are worried about how artificial intelligence (AI) will shake things up, and some companies are paying the price. AppLovin, for instance, saw its stock drop nearly 20%, even though it reported better-than-expected profits. The CEO tried to reassure everyone, saying the company is doing well, but the market wasn't convinced. Cisco Systems also felt the pinch, with its stock falling over 12%. Even though they beat profit and revenue expectations, they hinted at lower profit margins ahead. This could be due to rising costs for computer memory, driven by the AI boom. The big question on everyone's mind is whether the heavy investment in AI will pay off. Will companies see enough profit and productivity to justify the spending? The uncertainty is spreading beyond software stocks, affecting other industries and even the bond market. UBS strategists warn that AI disruption could lead to more defaults in junk bonds, making borrowing more expensive for even stable companies.But it's not all doom and gloom. Some companies are benefiting from the AI frenzy. Equinix, which provides data centers for AI, saw its stock jump over 10%, despite falling short of quarterly expectations. They forecast strong growth for 2026, thanks to high demand for their solutions. Outside of tech, McDonald's and Walmart saw gains. McDonald's reported stronger profits, thanks to cost-cutting measures, while Walmart's rally helped boost the S&P 500. The bond market saw Treasury yields fall as investors sought safer investments. Meanwhile, the job market showed signs of improvement, which could influence the Federal Reserve's interest rate decisions. The upcoming inflation report is crucial. Economists expect it to show a slight slowdown in inflation, which could impact the market's direction. In Asia, South Korea's Kospi surged over 3%, led by tech stocks, while other markets saw modest changes.