Key Highlights

● The Nasdaq Composite sank 694.00 points to 26,008.86, ending a seven-session winning streak.

● It was the steepest one-day drop since June 5 and erased about $1 trillion.

● Meta's spending plans and Lam Research's supply warning triggered the AI and chip selloff.

● The Dow edged up to 52,867.98 as about two in three S&P 500 stocks rose.

The Nasdaq Composite's winning run came to an abrupt end on Thursday, October 22. The index sank 694.00 points to 26,008.86, ending a seven-session winning streak, according to market data. It was the steepest one-day drop since June 5 and erased about $1 trillion in market value.

The Composite had closed at 26,702.86 on Wednesday after another gain. By Thursday's close it was sitting at its lowest level since mid-September and well below its record close of 27,599.89 on October 6.

How the streak was built, and how it broke

The streak had been powered by enthusiasm for AI and the companies building it. Wednesday itself featured strong moves in Dell (NYSE:DELL), Super Micro Computer (NASDAQ:SMCI) and newly listed SpaceX, which rallied after its quarterly report, along with crypto-linked stocks such as Strategy (NASDAQ:MSTR), Circle (NYSE:CRCL) and Coinbase (NASDAQ:COIN).

That momentum reversed overnight. Meta Platforms (NASDAQ:META) reported after Wednesday's close that it expects 2026 capital spending of $135 billion to $145 billion and posted negative free cash flow of $2.12 billion. Its shares had risen in after-hours trading on Wednesday before reversing to trade at $648.85 on Thursday, their worst day since July.

Lam Research (NASDAQ:LRCX) added to the strain, guiding December-quarter revenue to $8.6 billion, plus or minus $400 million, and warning of persistent supply-chain constraints. CEO Tim Archer said clean-room and component constraints would "limit chip makers and equipment companies' ability to fully meet end demand" into 2027.

Wednesday's winners turned into Thursday's losers. Dell and Super Micro gave back their gains, SpaceX slid to $144.75, giving back more than half of its post-earnings jump, and Strategy and Coinbase fell as bitcoin dropped to around $81,200.

Hedge funds head for the exits

Some strategists pointed to positioning. "The dominant market dynamic in recent weeks has been the unwinding of AI-related positions by hedge funds," one said. Prime brokerage data showed hedge funds' short-to-buy ratio at about five to one, with short leverage near its most extreme level of the past five years.

One bank said its clients pulled a record $14.8 billion from single stocks, though a separate figure showed $9.1 billion in net US equity sales last week, and the two may come from different datasets.

Nvidia (NASDAQ:NVDA) was hit too, sliding to $212.21 after CEO Jensen Huang said in a television interview that "the demand of the capital is much greater than the availability of the capital."

Views on what comes next

Opinions differed on what comes next. "Buying the dip here has [a] pretty good record of working," one commentator said. A market watcher who tracks sentiment struck a hopeful note for contrarians: "Maybe we'll finally get a change in sentiment."

Others were more cautious. One commentator wrote that "it will take more than one or two days to change the trend," while noting that the Nasdaq closed through both its 50-day and 100-day moving averages.

The rest of the market fared far better. The Dow Jones Industrial Average edged up to 52,867.98 and about two of every three S&P 500 stocks rose, as money rotated into staples, health care and homebuilders.

Next week's test for AI sentiment

Nasdaq-100 futures slipped slightly to 29,083.75 in evening trading, according to market data. The next major test for AI sentiment comes next week, when Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and ServiceNow (NYSE:NOW) report on October 28, the same day as the Federal Reserve's decision, and Amazon (NASDAQ:AMZN) and Intel (NASDAQ:INTC) follow on October 29. Investors will be watching whether those results revive the rally or extend Thursday's retreat.