AdvertisementWall Street has closed sharply lower with AI stocks again weighing on the market while escalating tensions in the Middle East are casting doubt on when United States and Iran can reach a deal to reopen the Strait of Hormuz to oil tankers.The S&P 500 dropped 1.6 per cent for its first back-to-back drop in three weeks and is back to where it was in early May. The Dow Jones tumbled 953 points, or 1.9 per cent, and the Nasdaq composite led the market lower with a 2 per cent slide.The AI rollercoaster ride is continuing on Wall Street.APThe Australian sharemarket is set to retreat, with futures at 6.31am AEST pointing to a fall of 62 points, or 0.7 per cent, at the open. The ASX added 0.6 per cent on Wednesday. The Australian dollar is lower at US69.98¢.The price for a barrel of Brent crude oil rose 1.8 per cent to $US93.10 after President Donald Trump warned Iran would “pay the price” for stalled negotiations between the two on their war. The war has been keeping the Strait of Hormuz effectively shut to oil tankers, which has prevented the delivery of crude from the Persian Gulf to customers worldwide.AdvertisementWall Street has been shaky since last week, when AI stocks went from roaring to records to suddenly turning lower. Among the worries is that their prices have simply shot too high, too fast because of AI mania. The question now is whether the break lower has cleared out excessive optimism that may have built into their stock prices, or if it’s the start of a longer downturn.Super Micro Computer, which sells AI servers, tumbled 28 per cent after saying late on Tuesday that it plans to raise $US7 billion ($10 billion) in cash by selling shares of stock and convertible preferred stock. Such moves raise the most money for companies when their stock prices are high, and they can dilute the ownership stakes of existing shareholders.Micron Technology swung from an early loss of nearly 4 per cent to a modest gain and back to a loss of 4.7 per cent. It’s coming off a wild stretch where it sank 7.7 per cent last Thursday, then plunged another 13.3 per cent Friday and rallied 9.9 per cent on Monday. Despite all the swings, the computer memory maker’s stock is still up 212.5 per cent for the year so far.Nvidia, the chip company that’s grown into a nearly $US4.9 trillion behemoth because of the AI boom, was the heaviest weight on the S&P 500 after falling 3.7 per cent. The second-heaviest was another AI winner, Broadcom, which fell 5.1 per cent.AdvertisementSome of the pressure on AI stocks could also be coming from investors pulling cash out to prepare for high-profile debuts on the US stock market for several AI giants. SpaceX’s initial public offering could come later this week, for example.Weakening stocks for companies with big fuel bills also pulled the market lower. United Airlines sank 6.2 per cent, and cruise-operator Carnival fell 6.3 per cent after oil prices rose due to the latest fighting in the war with Iran.High oil prices have sent inflation higher, and a report on Wednesday showed that prices for US consumers jumped in May at the highest speed in three years.But Treasury yields nonetheless held relatively steady in the bond market because the figures were pretty much exactly what economists had forecast. The rise in an important underlying measure of inflation, meanwhile, was not as bad from April through May as economists expected.The yield on the 10-year Treasury edged up to 4.54 per cent from 4.53 per cent late Tuesday. The two-year Treasury yield, which more closely tracks expectations for what the Federal Reserve will do with its overnight interest rates, held at 4.13 per cent.AdvertisementTraders have been building bets recently that the Fed will have to hike its main interest rate at least once this year, given how high inflation is and how strong the US job market remains. Wednesday’s inflation update didn’t sway them much, according to data from CME Group.High yields can slow entire economies and undercut prices for all kinds of investments, including stocks and cryptocurrencies. They hit investments seen as the most expensive in particular, and some critics are calling AI a bubble where investment inflated too far.All told, the S&P 500 fell 119.66 points to 7,266.99. The Dow Jones Industrial Average dropped 953.33 to 49,918.78, and the Nasdaq composite sank 509.32 to 25,169.50.In stock markets abroad, indexes in Europe were mixed following sharper drops in Asia.AdvertisementSouth Korea’s Kospi tumbled 4.5 per cent, hurt by losses for tech giants Samsung Electronics and SK Hynix.Tokyo’s Nikkei 225 sank 1.9 per cent after data showed Japan’s producer price index, a measure for prices at the wholesale level, rose in May at the fastest pace in more than three years. Shares of technology and telecommunications giant SoftBank Group, which has a strong AI focus, lost 8.3 per cent.APThe Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.SaveYou have reached your maximum number of saved items.Remove items from your saved list to add more.ShareMore:World marketsWall StreetAdvertisementAdvertisement