U.S. Stocks Retreat from Record Highs as OpenAI Report Sparks Tech Sector Worries

Technology giants led a sell-off in U.S. equities, reigniting concerns over whether massive investments in artificial intelligence will yield returns, just as traders prepared for a wave of earnings reports from major tech companies.

The technology sector, which has driven this month's market rally, came under pressure following a report indicating that OpenAI failed to meet its targets for new users and sales. This has raised market worries that the company may struggle to justify continued heavy investment in AI infrastructure. Shares of its partners, including Oracle and CoreWeave Inc., declined, pulling the S&P 500 down from its record high. The Nasdaq 100 index fell 1%.

Stocks linked to OpenAI dropped despite the ChatGPT developer's assertion that its consumer and enterprise businesses are operating at full capacity. The decline occurred amid reports that its competitor, Anthropic PBC, has been making progress in programming and enterprise markets.

Meanwhile, earnings season is set to kick into high gear for mega-cap technology firms, which account for roughly a quarter of the S&P 500's market value. Alphabet Inc., Microsoft, Amazon, and Meta Platforms Inc. are scheduled to report on Wednesday, with Apple following on Thursday.

Dennis Follmer of Montis Financial noted that any deviation in AI-related demand or capital expenditure could easily lead investors to question the market's gains over the past month.

“For investors, the key question is whether the AI train can continue to power the market forward,” he said.

On a positive note, tech sector profits have largely remained insulated from geopolitical tensions involving Iran. Industry data compilations suggest the sector is poised for a 41% increase in first-quarter earnings.

At market close, the S&P 500 was down 0.5% at 7,138.8 points. The Dow Jones Industrial Average fell 0.1% to 49,141.93 points. The Nasdaq Composite dropped 0.9% to 24,663.8 points, while the Nasdaq 100 declined 1% to 27,029.01 points. The Russell 2000 index decreased 1.2% to 2,756.051 points.