Stock markets mostly fall on AI bubble fears and interest rate uncertainty

Technology shares take a hit as week closes following disappointing messages from top companies

Festive celebrations at the New York Stock Exchange. Technology stocks weighed on Wall Street amid overspending concerns. AFP

Global stock markets mostly fell on Friday, with Wall Street retreating from record levels amid lingering fears over a bubble in the red-hot artificial intelligence sector.

The Dow Jones Industrial Average and S&P 500 had both touched historic highs on Thursday, but could not keep up with a slew of dragging concerns as the week drew to a close.

Technology stocks took a hit, especially after Oracle this week flagged a weak outlook. Chipmaker Broadcom cautioned about margins, sparking a sell-off.

Shares of Oracle and Broadcom fell more than 11 per cent and 4.5 per cent respectively. Nvidia, the darling of the AI boom, was not spared, shedding 3.3 per cent after recently reporting stellar third-quarter results.

However, fears of a bubble might be overstated, because the unprecedented AI spending is "driven by a new economic reality", said Rudy Torrijos, director of industry research at data tracker PitchBook.

"Fears of overinvestment are overblown and hyperscaler capital expenditure is not akin to the dot-com bubble. Instead, the industry has entered a secular supercycle," he said.

Investors are also tracking future moves from the Federal Reserve, after it cut interest rates for the third consecutive time following a years-long pause − and as the central bank is under continuing pressure from US President Donald Trump.

The regulator slashed interest rates by 25 basis points on Wednesday, while signalling it could again halt similar moves in the future following just one rate cut in 2026. Fed officials continue to track still-high inflation and a tepid jobs market - especially after government data showed on Thursday that US unemployment claims climbed by the most in four and a half years.

The European Central Bank, Bank of England and Bank of Japan are all slated to announce their interest rate decisions next week, with varying expectations from analysts.

Oracle slides as co-founder Ellison’s AI spending spree sparks market jitters

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"When stocks trade near record highs, they need good news to stay there. A rate cut meant to support the economy can raise doubts rather than confidence if investors believe it is needed to protect jobs," said Nigel Green, chief executive of Dubai-based financial services firm deVere Group.

“Profit-taking becomes more likely when investors start questioning economic strength. The rate cut provides both a reason to lock in gains and a reason to pause," he said.

On Wall Street, the Dow closed 0.5 lower, the S&P 500 slid 1.7 per cent and the tech-heavy Nasdaq retreated 1.1 per cent.

The Dow was the only index to eke out a weekly gain. Year-to-date, they are still up about 14 per cent, 16 per cent and 20 per cent, respectively.

In Europe, London's FTSE 100 settled 0.6 per cent lower, taking cues from the Wall Street's AI concerns and digesting a surprise third-quarter contraction in the British economy.

Paris' CAC 40 gave up 0.2 per cent and Frankfurt's DAX declined 0.5 per cent.

Earlier in Asia, major indices posted gains at the closing bell, keeping pace with Wall Street's Thursday highs.

Tokyo's Nikkei 225 added 1.4 per cent, Hong Kong's Hang Seng Index jumped 1.8 per cent and the Shanghai Composite grew 0.4 per cent.

In commodities, oil prices gave up gains and posted a weekly loss of more than 4 per cent, on oversupply concerns, as the possibility of peace deal between Russia and Ukraine overshadowed increasing US military action in Venezuela.

Brent settled 0.26 per cent lower at $61.12 a barrel, while West Texas Intermediate declined 0.28 per cent to $57.44 per barrel.

Gold, meanwhile, hit its highest level in about two months before cooling off after the dollar stabilised. The precious metal, considered a safe-haven asset, added 0.43 per cent to $4,300.40 an ounce.

Silver, meanwhile, scaled a record $64.64, before backing down and finishing about 4 per cent lower to $61.96 per ounce.