Wall Street stocks declined sharply on Friday, extending a global market downturn driven by renewed concerns over artificial intelligence (AI) valuations and a surge in oil prices linked to escalating tensions in the Middle East. The technology sector came under particular pressure following a strong rally in the Nasdaq Composite during the second quarter, as investors increasingly questioned the sustainability of high valuations amid growing uncertainty about the returns on substantial AI investments.

Semiconductor companies experienced some of the steepest losses, with Nvidia briefly losing its position as the world’s most valuable publicly traded company to Apple. Analysts flagged growing skepticism around the AI sector, noting that recent advances have not fully dispelled doubts about whether the sizable capital deployed will translate into meaningful commercial gains. Meanwhile, a Chinese startup, Moonshot AI, introduced a model thought by experts to be competitive with the more advanced AI products developed by U.S. firms, adding complexity to the investment outlook.

“All three major U.S. indices retreated, led by the tech-heavy Nasdaq, which dropped 1.4 percent,” said Angelo Kourkafas, a market strategist at Edward Jones. He attributed part of the market’s risk-averse sentiment to the recent spike in oil prices, which increased by over four percent. This rise was triggered by renewed hostilities between the United States and Iran, intensifying conflict over control of the Strait of Hormuz, a critical passage for global petroleum shipments. Brent crude futures settled at $88.10 per barrel.

Market watchers also highlighted the deteriorating situation in the Middle East as a significant factor weighing on investor confidence. Ipek Ozkardeskaya, senior analyst at Swissquote bank, noted that the region’s escalating conflict was “getting worse by the hour.” David Morrison, an analyst with Trade Nation, added that threats to vital maritime routes such as the Strait of Hormuz and the potentially strategic Red Sea have heightened uncertainty across global financial markets.

The negative sentiment was reflected internationally, with Asian and European stock markets falling in response to the U.S. market’s losses on Thursday, when sharp declines in Nvidia and Amazon shares contributed to the Nasdaq’s more than one percent drop. In Asia, Tokyo and Taipei were among the hardest hit markets. Japan’s Nikkei 225 index closed down about four percent, with major technology-related firms including semiconductor tester Advantest, Tokyo Electron, and SoftBank each losing over seven percent. The chipmaker Kioxia plunged nearly 16 percent, wiping out roughly half its market value since becoming Japan’s largest company by market capitalization last month.

Taiwan’s Taiex index declined 6.5 percent, with semiconductor giant TSMC falling more than seven percent despite recently reporting record second-quarter earnings and announcing plans to invest $100 billion in a manufacturing facility in Arizona. In Europe, most stock markets ended lower, although London bucked the trend, buoyed by strong performances among energy companies benefiting from the rise in oil prices.