Monday’s trading session began with all three major U.S. indices in negative territory, as investors weighed fresh concerns over a potential slowdown in AI infrastructure spending against a sharp climb in crude oil prices. The Dow Jones Industrial Average slipped 0.22%, the S&P 500 fell 0.71%, and the tech-heavy Nasdaq Composite dropped 1.26%. Semiconductor and hardware names bore the brunt of the selloff, with Vertiv Holdings Co plunging 11.29%, Corning Inc losing 9.43%, and Arm Holdings Plc down 8.95%. Other notable decliners included Astera Labs Inc, which fell 8.66%, Marvell Technology Inc dropping 8.62%, and Teradyne Inc sliding 8.52%.

Among the so-called "Magnificent Seven" megacap tech stocks, performance was mixed. Meta Platforms Inc bucked the trend with a 1.60% gain, while Alphabet Inc rose 1.06% and Microsoft Corp added 0.48%. Apple Inc also managed a modest 0.19% advance. However, Tesla Inc declined 0.90%, Amazon.com Inc fell 2.05%, and Nvidia Corp dropped 3.59%, underscoring the broader weakness in growth-oriented technology shares.

Across the Atlantic, European equities were mostly lower, with the pan-European Stoxx 600 index shedding approximately 0.3%. The energy sector provided a bright spot, however, as gains in oil heavyweights BP Plc and Shell Plc helped lift the UK's FTSE 100 index by 0.7%. In Asian markets, Japan's Nikkei 225 closed down 0.81%, while South Korea's KOSPI composite index suffered a steep 3.26% decline. Australia's S&P/ASX 200 index managed a slight gain of 0.10%, and mainland China's CSI 300 index finished 0.67% lower at 4,480.08 points.

Where investors should focus

The most immediate risk to the market is the potential for a slowdown in the tens of billions of dollars in capital expenditure that has fueled the AI boom. This apprehension intensified after Sam Altman indicated that OpenAI would not proceed with an initial public offering this year, citing safety concerns. The collective caution expressed by leading AI executives is an unusual and powerful signal that is weighing on early trading in the tech sector.

Analysts are now questioning whether these warnings signify an approaching end to the massive buildout of hyperscale AI computing power and infrastructure. If that is the case, the implications for financial markets could be profound, potentially triggering a significant selloff in chip stocks and other assets tied to the AI trade at the start of the new trading week. The current mood represents a sharp reversal from the exuberance seen in mid-summer, with some strategists viewing this as another phase of downward revisions to market expectations.

Oil prices surge on supply disruption concerns

In other markets, oil prices rallied after Saudi Arabia closed a key pipeline that provides an alternative route bypassing the Strait of Hormuz. U.S. West Texas Intermediate crude futures jumped 4% to surpass $104 per barrel, while Brent crude climbed 4% to trade above $109 per barrel. This follows last week's move, when U.S. crude broke through the $100 mark amid escalating tensions in the Middle East.

The surge in energy costs contributed to a difficult week for U.S. stocks. The Dow Jones Industrial Average posted its worst weekly performance since March, sliding 1.6% for the week, while the S&P 500 and the Nasdaq Composite fell approximately 0.8% and 0.7%, respectively.

Federal Reserve meeting in focus

Investors are now turning their attention to the Federal Reserve's September monetary policy meeting. According to the CME FedWatch Tool, futures traders are pricing in an approximately 88% probability of a rate hike. This follows Friday's U.S. consumer inflation data, which came in hotter than expected, leading traders to assign nearly 90% odds of a quarter-point increase on Wednesday. If enacted, it would mark the Fed's first rate hike since mid-2023.

The European Central Bank has already raised rates and has hinted at the possibility of further tightening if inflation continues to accelerate. Government bond yields are creeping higher, with global bond markets experiencing their worst weekly performance since mid-May. The benchmark 10-year U.S. Treasury yield is approaching 5%, a level not seen since 2023, while Germany's 10-year yield has climbed above 3.53%, reaching its highest point since 2009.