Middle East Clashes Send Oil Soaring. AI Spending And Inflation Fears Lead Stocks To Sink

Stocks are sinking on Thursday as escalating clashes in the Middle East send oil soaring, while rekindled inflation fears and concerns over AI spending are leading stocks to plummet.

The S&P 500 dropped 1.19%, while the tech-heavy Nasdaq Composite underperformed, sinking 2.16% at 12:11 p.m. The Dow Jones Industrial Average fell 0.88%.

Brent crude oil, the international benchmark, again passed the $100 per barrel after the Houthis struck two vessels carrying Saudi oil in the Red Sea.

A new report claimed that Iran flew military commanders and equipment to Yemen to help the group earlier this month.

Citing sources familiar with the matter, Reuters detailed that the flight took place on July 13 and involved at least 10 members of the Iranian Revolutionary Guard, including senior commanders.

"The IRGC commanders travelled there to support Houthi operations and provide training on new missile systems," one source told the outlet, adding that the flight also included gold to fund the activities.

The Houthis soon after announced that tankers carrying Saudi oil would be banned from crossing the Red, and on Thursday struck the vessels.

President Donald Trump threatened to strike Iran should the Houthis continue such actions. "A year ago the United States of America attacked, very powerfully, the Houthis, for their interference with commerce and trade, by shooting at ships. Since that time, and during our conflict with Iran, they have acted very responsibly. Unfortunately, now they are starting up again, shooting at two Saudi Arabian ships last night," Trump said in a social media publication.

"Please let this TRUTH serve to represent that if they do this again, the U.S. will hold Iran responsible, in that the Houthis are a Surrogate and/or Proxy of Iran, and major military punishment will be inflicted upon Iran and, of course, the Houthis, themselves, who I am very disappointed with in that they have, until now, acted very professionally and smart," he added.

Fears about AI spending compounded to the negative sentiment in the markets. Tesla fell more than 13%, while Alphabet lost more than 7% during the session as both companies reported negative free cash flow for this quarter. However, both also reported higher revenue than expected. Investors are also preparing for a critical week of earnings from other technology giants.

The emergence of lower-cost open-source AI models, particularly from China, along with signs that businesses are becoming more selective in purchasing AI services, has intensified concerns over future profitability.

CNBC detailed that Alphabet significantly raised its capital expenditure outlook for 2026, forecasting between $195 billion and $205 billion in spending, compared with previous guidance of $180 billion to $190 billion. The company also warned investors that spending is expected to increase further in 2027.

At the high end of that range, Alphabet could become the technology industry's largest capital spender this year, potentially surpassing Amazon, which previously projected more than $200 billion in annual capital expenditures but has yet to report updated guidance.

Tesla is pursuing a similarly aggressive investment strategy, though with a different focus. The electric vehicle maker reaffirmed plans to spend more than $25 billion on capital expenditures this year, representing roughly 200% year-over-year growth.