Nasdaq Dips Again as AI Slowdown Fears Persist, But BofA Calls the Selloff 'Noise' Ahead of This Week's Fed

NEW YORK — The Nasdaq Composite fell 47.92 points, or 0.18%, to 26,138.49 in early trading Tuesday, extending a two-day slide tied to renewed concerns over the pace of artificial intelligence development as investors also braced for the Federal Reserve's interest rate decision due Wednesday.

Tuesday's modest decline followed a steeper drop Monday, when the Nasdaq Composite fell 146.62 points, or 0.56%, to close at 26,186.41, while the tech-heavy Nasdaq 100 dropped 0.8%. The broader S&P 500 slid 0.48% to 7,619.98 and the Dow Jones Industrial Average fell 152 points, or 0.29%, to 52,421.20 in Monday's session. Chipmaker Nvidia was among the Dow's steepest decliners Monday, falling 3.26%, alongside Caterpillar, down 4.23%, and Goldman Sachs, down 3.99%. Not every stock moved lower: Salesforce gained 4.73%, IBM rose 2.36% and Alphabet climbed 2.15%, as some investors rotated into software and cloud-computing names seen as less directly exposed to any pullback in AI infrastructure spending.

The selloff traces back to a weekend essay from Anthropic Chief Executive Officer Dario Amodei, who called for AI companies to slow the pace at which they advance the capabilities of their most powerful models, citing safety concerns. The essay drew public endorsement from two of Amodei's most prominent rivals, OpenAI CEO Sam Altman and Tesla and xAI chief Elon Musk, an alignment that added weight to investors' reassessment of near-term AI infrastructure spending plans.

Heading into Tuesday's session, futures on the Dow, S&P 500 and Nasdaq-100 all edged down roughly 0.1% as investors continued monitoring the fallout from Amodei's essay while turning their attention to the Federal Open Market Committee's two-day policy meeting, which began Tuesday and is set to conclude with a rate decision Wednesday. Traders overwhelmingly expect the Fed to raise interest rates at the conclusion of the meeting, with markets also watching for the release of the Fed's so-called dot plot, which shows individual policymakers' rate projections, along with a press conference from Federal Reserve Chairman Kevin Warsh for further clues about the central bank's policy trajectory.

The U.S. dollar strengthened Tuesday as investors moved money out of AI-related stocks and into safer assets amid the uncertainty, pushing the dollar index above 99, its highest level in two weeks. Oil prices held relatively steady after a volatile stretch in recent sessions, with Brent crude trading near $102 a barrel and West Texas Intermediate near $103, though both benchmarks remain elevated following recent disruptions tied to tensions in the Middle East.

Not every market participant has embraced the more cautious framing of the AI investment cycle that has driven this week's selloff. In a research note, Bank of America pushed back directly against the idea that the industry is entering a meaningful slowdown. "We view these events as noise relative to a secular market where AI-capex could surge 3x to $3tn+ by decade-end," the firm wrote. BofA pointed to continued strong underlying demand signals as evidence, citing "100% network utilization, rising rental rates even for older-generation chips and a global AI arms race involving the U.S. versus China, hyperscalers versus neoclouds, sovereign programs and frontier labs competing for leadership." The bank concluded that the scale of investment already committed to AI infrastructure makes a sustained pullback unlikely. "The economic stakes are simply too large for any sustained meaningful deceleration, in our opinion," the firm said.

Tuesday's trading session offered a relatively light slate of scheduled corporate earnings and economic data, with Forgent Power Solutions and Vera Bradley among the few companies reporting quarterly results. That left the Fed's upcoming decision, along with any further developments tied to the AI safety debate, as the dominant forces likely to shape market direction through the remainder of the week.

The Nasdaq Composite, which tracks nearly all stocks listed on the Nasdaq Stock Market and carries a combined market capitalization in the tens of trillions of dollars, has become closely watched as a barometer for investor sentiment toward the technology sector specifically, given its heavy weighting toward large technology and AI-linked companies relative to broader benchmarks like the S&P 500. That concentration has left the index particularly sensitive to shifts in sentiment around the AI investment cycle, a dynamic reflected clearly in this week's trading pattern, with AI-adjacent hardware and chip names bearing the brunt of the selling while software and cloud-services companies have shown more resilience.

With the Fed's rate decision now just a day away and the broader industry debate over AI development timelines still unresolved following Amodei's essay, investors are likely to remain focused on whether Tuesday's modest decline represents a stabilization after Monday's steeper losses, or merely a pause within a longer stretch of volatility as markets continue digesting both the monetary policy outlook and the shifting narrative around AI infrastructure spending heading into the back half of the year.