U.S. stocks finished mixed on Thursday, with the Dow Jones Industrial Average up 0.10%, the Nasdaq Composite down 1.25% for its biggest one-day drop in nearly seven weeks, and the S&P 500 lower by 0.47%. The Philadelphia Semiconductor Index fell more than 3% and led the weakness.
Markets were forced to absorb several pressures at once: shifting signals on Iran, a pair of Treasury auctions that improved sentiment around bond demand, a worsening U.S. fiscal picture, and fresh doubts about the durability of the AI spending boom after new OpenAI revenue figures surfaced.
Iran headlines kept oil volatile
Donald Trump said on Truth Social on Thursday that the United States would not attack Iran before the Nov. 3 midterm election and added that Washington and Tehran were engaged in “productive discussions.” Even so, the Pentagon had already prepared a three-day high-intensity strike option aimed at Iran’s missile and drone stockpiles, energy facilities, and Revolutionary Guard command systems. Three U.S. aircraft carriers are set to gather in the Middle East in the coming weeks, the first such concentration since 2003.
Iranian Foreign Minister Araghchi said Tehran had proposed a “seven-day plan” and would formally respond to the U.S. proposal in the coming days. Traders remained skeptical. Oil rose more than 5% intraday, Brent settled at $104, and WTI was up more than 4% at one point. After Trump’s post, oil gave back only about 1%.
Again Capital partner John Kilduff said, “Trading this market right now is basically a geopolitical roulette game. Everyone I speak with is cutting position size.”
The U.S. Treasury also announced a new round of sanctions on Iran, targeting 17 vessels involved in transporting Iranian crude and petrochemical products. U.S. officials estimate that about 20 million barrels of Iranian crude remain stranded on ships.
Treasury auctions eased some pressure on long-end yields
Two closely watched auctions this week changed the tone around demand for U.S. government debt. On Oct. 8, the $39 billion 10-year Treasury sale drew a bid-to-cover ratio of 2.77, while primary dealers were left with only 2.5%. On Oct. 9, the $22 billion 30-year auction stopped at 5.618%, with a bid-to-cover ratio of 2.54, above the 2.41 average of the previous six sales. Indirect bidders took 72.3%.
After touching 5.73% intraday, the 30-year Treasury yield fell back to about 5.6%. The 10-year yield eased from around 5.35% to 5.23%.
Molly Brooks, a rates strategist at TD Securities, said, “Demand held in there, and that is a positive signal for investors looking to step into the long end.”
David Zervos, a new adviser to Treasury Secretary Bessent, said real yields are “very, very high” by historical standards and could move lower once the energy shock fades.
CME data showed the probability of no rate change in October rising to 82.3%, while the probability of a cumulative 25-basis-point increase by December remained above 60%. Governor Waller said more rate hikes may still be needed, though not necessarily in consecutive meetings. St. Louis Fed President Musalem suggested rates should continue moving higher over the next six to nine months. Fed Chair Warsh is scheduled to speak at the IMF annual meeting in Bangkok on Oct. 16, the final day before the pre-meeting blackout period begins.
Fiscal strain and AI borrowing are competing for capital
The U.S. fiscal deficit for fiscal 2026 climbed to $1.993 trillion, up 12% from a year earlier and the highest since 2021. The deficit is expected to exceed 6% of GDP. Interest expense has become the largest pressure point. Net interest costs have risen above $1.1 trillion, up 11% year over year, exceeding both defense and healthcare spending and accounting for more than one-fifth of total tax revenue.
With corporate tax receipts down 16%, tariff revenue missing expectations, and tax cuts still weighing on revenue, U.S. public debt has moved above the size of the economy. Economists criticized the slow pace of fiscal consolidation, arguing that annual deficits of roughly $2 trillion are not sustainable in an economy that is still growing and has relatively low unemployment.
At the same time, the AI buildout is pulling heavily on long-term funding. Oracle, Broadcom, and SpaceX have issued nearly $500 billion in new debt this year for AI infrastructure, with more than $150 billion in additional financing plans recently discussed. Oracle is raising money through a special purpose vehicle. SpaceX is seeking about $10 billion in bank loans and $30 billion in bonds to buy Nvidia chips. Broadcom is also raising tens of billions of dollars.
Stress in credit markets has intensified. Five-year CDS spreads for Oracle, SpaceX, and Broadcom have all reached record highs. The market-implied five-year default probability for Oracle is above 20%, while SpaceX is around 16%. Goldman Sachs strategists warned that AI borrowers willing to pay high rates could create a meaningful crowding-out effect. In the high-yield market, CCC-rated bond spreads are in the 99th percentile of the past year, showing that financing pressure is spreading more broadly.
Japan, one of the biggest sources of demand in global bond markets, is also shifting course. With the 10-year Japanese government bond yield moving above 3% to a 30-year high, Japanese investors have become more selective about overseas assets. They hold about $145 billion of French government bonds, down 2.5% from the end of last year. In the first half, they were net sellers of about $28 billion in long-dated U.S. Treasuries, the first half-year net sale since 2022.
OpenAI revenue figure hit the AI spending narrative
The AI trade lost momentum after investor documents showed OpenAI had annualized revenue of nearly $50 billion as of the end of September, well below the $70 billion figure that had circulated in the market. The report said the gap came from different accounting methods: OpenAI counts only direct revenue, while competitors include cloud-channel revenue.
Even so, the roughly $20 billion difference was enough to challenge one of the market’s core assumptions, that AI demand would keep expanding without meaningful limits. Most of the Nasdaq’s decline came from technology and semiconductor names, while cloud services, optical interconnect, and data-center stocks all came under pressure.
Goldman Sachs’ trading desk said earnings from Samsung and Taiwan Semiconductor Manufacturing Co. failed to meet elevated expectations, while reports of additional bond financing by Oracle and Broadcom added to doubts about whether current capital spending levels can be sustained. Matt Maley of Miller Tabak said investors are starting to question how long AI spending at this scale can continue when borrowing costs have risen so sharply. UBS Wealth Management kept its view that the structural opportunity remains intact, but flagged near-term risks tied to financing and execution.
Tech and AI-linked names sold off, with a few exceptions
Nvidia fell 2.94%. The company said it would commit resources worth $10 billion over the next five years to support U.S. “superintelligence” research in areas including quantum computing, healthcare, and energy security. It also plans to invest in AI inference chip company d-Matrix to broaden ecosystem compatibility. Even so, the OpenAI revenue gap dominated trading.
Semiconductor and memory-related names were broadly weaker. The Philadelphia Semiconductor Index fell 3.39%, AMD lost 3.90%, Intel dropped 5.34%, Broadcom fell 4.35%, Marvell Technology lost 3.52%, Micron Technology fell 4.79%, and SanDisk dropped 4.90%.
Oracle fell 5.48%. Pressure came from the hit to the AI capital-expenditure narrative and from reports that the company was using off-balance-sheet SPV financing to fund chip purchases. Its CDS spread closed at a record 261 basis points, implying a five-year default probability above 20%.
Data-center and cloud names also sold off. Nebius fell 7.35%, CoreWeave dropped 7.77%, Applied Optoelectronics (AAOI) lost 13.58%, and Coherent fell nearly 10%.
Palantir rose 2.40% after technology analyst Dan Ives named Palantir, Nvidia, Microsoft, Apple, and CrowdStrike as the five tech companies most worth watching into 2027 and assigned them an outperform rating.
SpaceX closed down 4.19%. The company said it would acquire a nationwide portfolio of low-band spectrum licenses to push Starlink Mobile deeper into the traditional U.S. wireless market. Separately, the Federal Communications Commission approved the launch application for 15,000 second-generation Starlink satellites.
Apple gained 1.11%. The company said it would hold a smart-home product event on Oct. 13 and, according to reports, plans to launch its first touchscreen MacBook Pro, a new iPad mini, and MacBook Pro and iMac models powered by the M6 chip around Oct. 27.
Google fell 0.63% after introducing its Gemini general work agent, expanding AI use cases in enterprise workflows, code execution, and multimedia generation. Prediction markets now imply a 43% chance that Google will have the best AI model by year-end, slightly above Anthropic at 42%.
Microsoft lost 1.35%. The Trump administration froze some green card applications involving Microsoft, Adobe, and large IT outsourcing firms, and also opened investigations into nine top universities, widening its visa crackdown.
Amazon fell 2.25%. The company launched a new Alexa-branded tablet lineup, dropped the value-focused Fire series, and priced the new devices between $230 and $550, with shipments set for Oct. 14. Amazon is also facing competition from Apple’s smart-home push and Google’s Gemini agent.
Tesla slipped 0.74%. Elon Musk had earlier accused unnamed “oligarchs” of obstructing Starlink deployment in India. India’s communications ministry later said claims that the country’s satellite communications framework was unfair had no basis.