Wall Street Experiences Decline as AI Favorites Falter

NEW YORK -- Wall Street faced another setback on Tuesday, with notable declines in shares of Nvidia and other prominent companies associated with the artificial intelligence (AI) sector. The S&P 500 index decreased by 0.6%, marking its third consecutive loss, yet it remains close to the all-time high reached last week. Meanwhile, the Dow Jones Industrial Average managed a slight increase of 10 points, or less than 0.1%, while the Nasdaq composite index fell by 1.5%.

Nvidia, a key player in the AI boom due to its powerful chips, was a significant contributor to the market's downturn, witnessing a drop of 3.5%. Another company in the AI spotlight, Palantir Technologies, saw its stock plummet by 9.4%, representing the largest decline in the S&P 500. The company's stock has been the subject of increasing short-selling activity, indicating that many investors are betting on further declines. Only Meta Platforms, the parent company of Facebook and Instagram, has experienced a larger rise in short interest this year, with its stock dropping by 2.1%.

Concerns have been mounting regarding the rapid ascent of stock prices in recent months, particularly since reaching a low point in April. Palantir's stock has surged by an impressive 130% year-to-date, raising questions about sustainability.

Companies often seek to counterbalance high stock prices by delivering robust earnings growth. In this regard, Palo Alto Networks reported a 3.1% increase in its shares after exceeding analysts' expectations for earnings and revenue in its latest quarter. Additionally, the cybersecurity firm provided optimistic forecasts for profit and revenue for the upcoming fiscal year.

Home Depot contributed positively to the Dow's performance with a gain of 3.2%. Despite reporting quarterly results that fell short of analysts' expectations, the retailer achieved revenue growth and reaffirmed its previous forecasts for the full fiscal year. Other major retailers are expected to release their earnings reports in the coming days, with Lowe's and Target scheduled for Wednesday, followed by Walmart and Ross Stores on Thursday.

Looking ahead to the end of the week, all eyes on Wall Street will be focused on a significant speech by Federal Reserve Chair Jerome Powell, set to take place in Jackson Hole, Wyoming. Historically, this event has been a venue for pivotal policy announcements. Investors hope that Powell may indicate potential interest rate cuts in the near future.

The Federal Reserve has maintained its primary interest rate steady this year, largely due to concerns that tariffs imposed by former President Donald Trump could exacerbate inflation. However, a recent disappointing jobs report could shift the focus, with many traders anticipating rate cuts at the Fed's upcoming meeting in September to stimulate the economy. As a result, Treasury yields have seen a noticeable decline in the bond market.

On Tuesday, the yield on the 10-year Treasury note decreased to 4.30%, down from 4.34% late the previous day. Analysts at Bank of America caution that Powell may not express as strong a commitment to interest rate cuts as the market anticipates, potentially discussing the risks of a worst-case economic scenario known as "stagflation," where stagnation occurs alongside persistent inflation.

In other market movements, Viking Therapeutics saw a dramatic decline of 42.1% after announcing results from a clinical trial for an oral obesity treatment. Conversely, Tegna shares rose by 4.3% following news that Nexstar Media Group plans to acquire the company for $22 per share in cash. Nexstar, which operates the CW network and various local television stations, experienced a slight increase of 0.7%.

Overall, the S&P 500 declined by 37.78 points, closing at 6,411.37. The Dow Jones Industrial Average edged up by 10.45 points to settle at 44,922.27, while the Nasdaq composite fell by 314.82 points to finish at 21,314.95.

Internationally, markets in Europe saw gains after experiencing modest declines in Asia. The Nikkei 225 index in Tokyo fell by 0.4%, influenced by a 4% drop in shares of SoftBank Group Corp., which announced a $2 billion investment in U.S. chip manufacturer Intel. However, Intel's stock rose by 7% in response to this news. Additionally, U.S. Commerce Secretary Howard Lutnick confirmed that the Trump administration is considering taking an ownership stake in Intel.