Investor sentiment took a double hit on Thursday as escalating US-Iran tensions drove oil above $100 a barrel and a sharp selloff in mega-cap tech stocks erased hundreds of billions in market value. The Bloomberg Magnificent 7 Index dropped 4.8%, wiping out roughly $767 billion, after earnings from Alphabet and Tesla stoked fears that massive AI infrastructure spending may not deliver near-term returns.
Trump Signals Potential Escalation Against Iran
President Donald Trump has indicated the US may intensify its military campaign against Iran, according to an Axios report, with a “massive attack” under consideration. Trump warned that both Iran and the Yemen-based Houthis would face military consequences if Red Sea shipping is further targeted. The threats follow Houthi claims of striking two Saudi oil tankers, opening a new front in a conflict that has already severely disrupted traffic through the Strait of Hormuz.
The standoff, which began after US and Israeli strikes on Iran in February, has seen 12 consecutive days of exchanges. Iran has warned it could retaliate against regional energy infrastructure if the US expands its campaign, and reiterated that negotiations are unlikely while military operations continue. Shipping through the Strait of Hormuz has fallen sharply, and Iranian oil exports have reportedly dropped, tightening global supply.
Magnificent 7 Rout Deepens on AI Spending Concerns
Technology stocks suffered steep losses as Alphabet raised its capital expenditure forecast to as much as $205 billion this year, pushing its cash flow negative for the first time since going public. Tesla reported weaker-than-expected profits and flagged elevated capital spending in 2026, sending its shares down 14%—the biggest intraday drop since June 2025. Alphabet fell 6.6%.
The selloff reflects growing unease that the enormous investments required to build AI infrastructure may weigh on profitability before generating meaningful returns. Other major AI spenders, including Microsoft, Amazon, and Meta Platforms, also traded lower ahead of their earnings reports next week. Apple and Nvidia posted comparatively smaller declines, with Apple largely avoiding the recent AI spending surge and Nvidia lagging the broader semiconductor sector as investor attention shifts to memory chipmakers supporting AI infrastructure. For more on the broader tech selloff, see Magnificent 7 Earnings Season: Underperformance Tests AI Spending Thesis.
Gold Retreats as Dollar Strengthens, Oil Surges Past $100
Gold prices fell 1.9% to $4,049.74 per ounce after reaching a two-week high in the prior session, as rising oil prices fueled inflation concerns and strengthened expectations that interest rates could remain elevated. The US dollar strengthened and the benchmark 10-year Treasury yield climbed to its highest level in over a year, reducing the appeal of non-yielding bullion. Markets are now focused on next week’s Federal Reserve policy decision, with traders increasing bets on a September rate hike.
Brent crude rose 6.5% to $100.19 a barrel, its first close above $100 since late May, while West Texas Intermediate gained 5.7% to $91.80. The rally followed reports of Houthi attacks on Saudi oil tankers in the Red Sea, compounding supply concerns from the near-halt in shipping through the Strait of Hormuz. Brent has surged nearly 40% this month. Goldman Sachs warned that Brent could exceed $120 per barrel in the fourth quarter if Strait of Hormuz disruptions persist into 2027, with additional upside if the Bab el-Mandeb Strait and Suez Canal face prolonged disruptions. For context on how geopolitical risks are impacting other sectors, see Evening Digest: US-Iran Tensions Escalate, Anthropic to Buy AMD Chips in $50B+ Deal.
The combination of rising energy costs and higher Treasury yields is adding pressure to equity valuations, particularly in growth-oriented sectors. Investors are now weighing whether the AI spending boom can sustain its momentum amid mounting geopolitical and macroeconomic headwinds. For a deeper dive into the tech sector’s challenges, see Evening Digest: Moonshot's Kimi K3 Triggers AI Selloff; Apple Briefly Retakes Top Market Cap.
This article is for informational purposes only and does not constitute financial advice.
