US stocks tumbled on Thursday, with the Nasdaq posting its steepest daily drop since early June as a batch of high-profile earnings reports ignited fresh fears about the AI spending race.

All three major US stock indexes were lower, with the tech-laden Nasdaq, weighed down by microchips, falling 2.7% following a spate of high-profile AI-related earnings results.

Meta Platforms’ results beat analyst expectations, but its stock slid 7.5% as the Facebook parent posted its first cash outflow in more than a decade due to its AI-related expenditures and announced plans to issue non-voting shares in a two-for-one split to raise capital to spend on the nascent technology.

Tesla shares fell 2.1% even though the electric car maker unexpectedly posted positive free cash flow in the quarter and cut its 2026 capital spending plans.

The Philadelphia SE Semiconductor Index, which has driven much of the current bull market’s gains, plunged 6.3%, which would be its biggest daily percentage drop since June 23.

With Thursday’s decline, the SOX is off more than 26% from its record closing high reached on June 22, yet it remains up 52.2% so far this year. The S&P 500 has risen 11.8% gain over the same period.

“It’s the same narrative that we’ve seen in the last few weeks or even few months, where investors are rightfully questioning how much further the tech and AI adoption can go given some of the political and social backlash,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. “There’s a hypersensitivity around earnings for AI-related stocks.”

“If you’re a tech CEO, you can’t afford to risk being left behind,” Pursche added. “From an investor’s perspective, we don’t know what the (return on investment) is going to be or whether governments, whether on a local, state, or federal level, might step in with restrictions.”

On the geopolitical stage, Iran-backed Houthis launched new strikes against Saudi targets, sending crude prices to a five-month high. Investors worried that ongoing Middle East strife could keep inflation hot and force the US Federal Reserve to keep raising interest rates.

Data from the Labor Department showed initial claims for unemployment benefits kept drifting along near multi-decade lows. Signs of labor market stability will allow the Fed to focus on fighting inflation. Financial markets are currently pricing in the probability that the central bank will raise its policy rate by another 25 basis points before year-end.

The Dow Jones Industrial Average fell 106.39 points, or 0.20%, to 52,749.70, the S&P 500 lost 109.43 points, or 1.41%, to 7,647.74 and the Nasdaq Composite lost 712.85 points, or 2.68%, to 25,988.10.

Third-quarter earnings season is well underway, with 111 of the companies in the S&P 500 having reported. Of those, 83% have beaten analyst expectations, according to the most recent LSEG data.

Procter & Gamble warned that rising cost pressures would take an increasing bite out of profit, but beat analyst estimates, sending the stock 6.0% higher and supporting consumer staples.

Blackstone advanced 6.6%, after the company said widening credit spreads on AI-related debt could present an opportunity to lock in higher returns.

Lockheed Martin climbed 6.1% after the aerospace/defense firm raised its annual sales and profit forecast.

Spotify rose 10.7% after the Swedish music streaming firm forecast fourth-quarter profit above Wall Street estimates, betting on its AI-powered features to drive user growth.

Union Pacific gained 2.9% following the company’s quarterly earnings beat, which was helped by core pricing gains, although the railroad flagged a hit from rising fuel prices.

Chipmakers Western Digital, Intel, ADM, Sandisk, and Marvell all dropped more than 7% amid the broader semiconductor selloff.

Declining issues outnumbered advancers by a 1.05-to-1 ratio on the NYSE. There were 145 new highs and 323 new lows on the NYSE.

On the Nasdaq, 1,932 stocks rose and 2,772 fell as declining issues outnumbered advancers by a 1.43-to-1 ratio.

The S&P 500 posted 36 new 52-week highs and three new lows while the Nasdaq Composite recorded 77 new highs and 290 new lows.

(Reporting by Stephen Culp; Additional reporting by Tharuniyaa Lakshmi and Ragini Mathur in Bengaluru; Editing by David Gregorio)