Tech Stocks Plunge Amid AI Disruption Concerns

Stock Market Performance and Tech Sector Decline

The U.S. stock market experienced a sharp downturn on Thursday, with all three major indexes declining significantly. The Dow Jones Industrial Average fell by roughly 1%, losing over 500 points, while the S&P 500 dropped 1.2%. The tech-heavy Nasdaq Composite faced the steepest decline, falling nearly 2%. This performance was largely driven by a broad sell-off in technology stocks, as concerns about artificial intelligence (AI) disruption rattled investors.

Tech giants including Apple, Meta, and Amazon were among the hardest hit. Apple shares plunged 5%, making it the worst performer among the "Magnificent Seven" stocks, following reports of delays in the company's AI-driven Siri upgrade. Meanwhile, Meta and Amazon both saw losses exceeding 2%. Cisco Systems also contributed to the tech sector's poor performance, with its stock plummeting 11% after issuing a gloomy profit outlook, despite reporting a rise in sales driven by AI-related infrastructure spending.

The market's tech sell-off reflects growing fears that AI advancements could disrupt traditional business models across multiple industries, creating long-term uncertainties for even the largest players in the sector.

Investor Focus on Inflation and Labor Market Data

Investors are now shifting their attention to Friday’s Consumer Price Index (CPI) report, which is expected to provide critical insights into inflationary pressures and guide Federal Reserve interest rate decisions. A softer inflation reading could bolster hopes that the Fed might ease its monetary tightening, but strong January labor market data has complicated the outlook.

Recent data showed the U.S. economy added twice the expected number of jobs in January, highlighting a resilient labor market. However, weekly jobless claims, released on Thursday, showed a smaller-than-expected decline, signaling potential cracks in the employment landscape. Initial claims stood at 227,000 for the week, slightly above the consensus estimate of 223,000.

The combination of a strong labor market and persistently high inflation reduces the likelihood of near-term interest rate cuts, a key driver of recent equity market gains. Investors will be watching closely to see if Friday's CPI data shifts these expectations.

AI-Driven Electricity Price Inflation

Rising electricity prices are emerging as a significant inflationary pressure, driven by the rapid development of AI data centers. Goldman Sachs analysts reported that electricity prices in the U.S. rose 6.9% year-over-year as of December 2025, outpacing the 2.9% increase in headline Personal Consumption Expenditures (PCE) inflation during the same period. This trend is expected to persist, with electricity prices projected to rise at an annualized average of 6.8% through 2026.

The surge in electricity costs is primarily attributed to the energy-intensive nature of AI data centers, which require substantial power for operations. In response, utility companies have increased capital investment to expand energy supplies, but regulatory bottlenecks and equipment shortages, such as those affecting transformers and gas turbines, are limiting progress.

Goldman Sachs noted that electricity inflation is likely to be most acute in regions with concentrated data center capacity, including the Midwest, California, and Texas. Policymakers are grappling with how to address these challenges, with some states proposing legislation to regulate or pause new data center construction. However, these measures may take time to alleviate the immediate pressures on electricity prices and overall inflation.