NEW YORK — Tech stocks weakened Monday as investors grew wary of escalating artificial intelligence spending by major technology companies, with the sector facing fresh scrutiny ahead of key U.S. jobs data this week.
The Nasdaq Composite fell around 1.5%, dragged lower by semiconductor and AI-related shares, while the S&P 500 declined modestly with the broader market showing mixed performance. Nvidia shares dropped more than 3%, with notable declines also in Micron Technology, Broadcom and other chipmakers.
Analysts attributed the moves to renewed concerns that massive capital expenditures on AI infrastructure may take longer than expected to generate commensurate returns, pressuring profit margins at hyperscalers and their suppliers. Recent reports highlighted ongoing heavy spending by companies including Microsoft, Google parent Alphabet, Amazon and Meta Platforms on data centers and related equipment.
"Investors are questioning the sustainability of returns on these huge AI investments," said one market strategist, speaking on condition of anonymity because they were not authorized to comment publicly. Similar jitters have surfaced periodically since 2024, but the latest bout reflects persistent uncertainty even as some companies report strong demand signals.
The pullback comes as Wall Street prepares for the U.S. Labor Department's June employment report, scheduled for release on Thursday. Economists expect the data to show continued moderation in hiring after May's stronger-than-anticipated gain of 172,000 nonfarm payroll jobs, with the unemployment rate holding steady at 4.3%.
Stronger-than-expected jobs figures earlier in the month contributed to selling in growth stocks by raising expectations for higher interest rates for longer, which hurts valuations of long-duration AI bets. This week's report could influence Federal Reserve rate-cut expectations later in the year.
Technology shares have powered much of the market's gains over the past two years on optimism about AI's transformative potential. However, rising capital expenditure forecasts — with some estimates projecting a sharp increase in 2026 — have fueled debate over near-term profitability.
Oracle disclosed in its latest annual report that it cut about 21,000 jobs in the prior fiscal year as part of streamlining efforts tied to its AI pivot, illustrating how companies are balancing heavy investment with cost control.
Market participants will also watch earnings from additional tech firms this week for further guidance on AI monetization timelines. Some analysts note that while spending remains elevated, early signs of demand for AI infrastructure are emerging, though returns are still in early stages.
As of Monday's close, major indices remained near record levels but with technology leading recent underperformance relative to other sectors. Trading was expected to remain volatile through the jobs data and into the July 4 holiday weekend.
