Wall Street realized AI might be destroying profits

All three major indexes tumbled as investors suddenly questioned whether tech’s massive spending actually works

Wall Street came back from the long weekend in no mood to celebrate anything. All three major U.S. indexes stumbled out of the gate on Tuesday, dragged lower by weakening consumer sentiment, fresh earnings disappointments and a growing sense that the artificial intelligence boom may be creating as many losers as winners. The Nasdaq Composite dropped close to 1 percent in early trading while the S&P 500 fell as much as 0.8 percent and the Dow Jones Industrial Average shed roughly 167 points. By late morning, the indexes were seesawing between modest gains and steep losses—the kind of whiplash that has defined markets in recent weeks.

What made Tuesday’s session genuinely unsettling was the sheer breadth of the selling. The AI scare trade has jumped well beyond software and is now touching corners of the market that rarely share a headline. Chipmakers like Nvidia slid nearly 2 percent while Advanced Micro Devices dropped almost 5 percent as investors questioned whether massive hardware spending will ever deliver proportional returns. Cloud and platform giants including Microsoft and Amazon traded lower, caught between their roles as AI enablers and the uncomfortable reality that their own customers may eventually need less of their services.

Five industries got caught in the AI crossfire

Insurance brokers and financial intermediaries came under pressure after companies like Insurify launched AI-powered comparison tools, prompting investors to wonder what happens to middleman fees when software handles the workflow. Real estate services and data firms got swept into the turbulence as analysts estimated that roughly a fifth of private credit exposure is tied to vulnerable software companies. Trucking and logistics firms took hits after an AI freight tool rattled the sector, proving that no industry feels safe from automation anxiety.

The S&P software and services group alone has shed roughly $2 trillion since its October peak, with much of that damage piling up in recent weeks. That’s not volatility. That’s a fundamental reassessment of whether tech companies have been spending money wisely.

Consumer weakness is making everything worse

Beyond AI anxiety, old-fashioned consumer gloom added another layer of worry. General Mills saw its stock plunge 7.2 percent after the Cheerios maker slashed its profit forecast for 2026, citing customers who feel increasingly pessimistic about their financial futures. Multiple surveys have shown U.S. household confidence sliding, weighed down by stubborn inflation, a job market that delivered disappointing growth and lingering uncertainty over tariffs.

Genuine Parts, the auto and industrial replacement parts distributor, also reported weaker-than-expected quarterly results and saw its shares drop nearly 12 percent. When companies that depend on steady consumer spending start issuing warnings, it signals something bigger is shifting in the economy.

Fund managers are openly questioning the AI bet

A Bank of America survey of global fund managers found that a record percentage now believe companies are overinvesting in AI. That’s a remarkable shift from just a year ago, when the promise of artificial intelligence was propelling U.S. stock indexes to one record after another. Companies like Alphabet have signaled that spending on AI data centers, chips and infrastructure could balloon to roughly $180 billion this year. Fund managers want enormous profits and productivity gains to justify those outlays, but so far the evidence has been mixed at best.

That’s the real problem. Investors don’t doubt that AI matters. They doubt whether the returns will materialize anywhere near the spending levels we’re seeing. When you’re spending hundreds of billions, the bar for return on investment gets genuinely high.

Wall Street strategists are deeply divided on what comes next

Some strategists view the turmoil as healthy rotation rather than a genuine retreat from equities. Others believe the market may be pricing in worst-case disruption scenarios, creating potential rebound opportunities. A Morgan Stanley strategist recently called the current mood a “bull market in disruption hysteria,” which is a polite way of saying everyone’s panicking over uncertainty.

Not all news was grim. Warner Bros. Discovery climbed 2.3 percent on reports it was pursuing a final buyout offer for Paramount, while Paramount Skydance jumped 6.2 percent. The 10-year Treasury yield held steady at 4.04 percent, and European indexes posted modest gains. But the overarching mood felt less like cautious optimism and more like a market trying to decide whether AI is the greatest wealth creator of a generation or the thing that devours everyone’s margins.

For now, the answer appears to be both, and that uncertainty keeps the sell button genuinely tempting for investors who just want clarity.