The black week for big tech
According to The Guardian, U.S. markets closed sharply lower on Friday due to a wave of selling in technology stocks that began at the start of the month and accelerated after disappointing quarterly results from the sector's leading companies. In a single week, the decline wiped almost $1 trillion in value off the Nasdaq, the heavily tech-weighted index, while over the course of a month the loss is around $2 trillion. The S&P 500 fell more than 1% on Friday, burning hundreds of billions in market capitalization and heading toward erasing its October gains despite having hit a record high during the same month. The Nasdaq Composite shed more than 3%, while the Dow Jones Industrial Average recorded a more contained contraction.
The picture is one of a correction concentrated in the tech sector: on Friday, the sector's losses overshadowed a mixed performance across the rest of Wall Street, with the S&P 500 almost evenly split between gainers and decliners. According to The Guardian, more than $2 trillion in market value is set to be erased from the Nasdaq 100 this month, a figure that — the newspaper writes — slightly exceeds SpaceX's entire market capitalization. Since the start of October, the index has lost more than 5.8%.
The issue of AI returns
At the root of the selloff, according to the source's reconstruction, is investors' growing question of whether the billions of dollars big companies are devoting to artificial intelligence can generate profits and productivity quickly enough to justify the spending. Meta Platforms, Alphabet and Amazon have raised their spending forecasts as they compete to expand AI-dedicated infrastructure. The doubts add to concerns that high interest rates could slow the construction of new data centers, putting pressure on shares of chipmakers and other beneficiaries of the race to build AI infrastructure.
On individual results, Intel fell almost 30% and came close to its worst day since 1974, despite quarterly earnings beating analysts' expectations: its profit forecast for the last three months of the year was far below estimates. Amazon fell 1.8% after reporting weaker-than-expected summer profit and disclosing that it had spent more than expected this year. The previous day, Alphabet had lost more than 12%, with $500 billion in market capitalization erased, in its worst day ever, after telling investors it had burned more cash in summer than in spring precisely because of massive AI investments. Nvidia, previously valued at about $5 trillion, fell 3.1% and was the main drag on the S&P 500.
High expectations and open questions
Despite the correction, expectations about U.S. companies' ability to generate high profits remain high: according to The Guardian, it was precisely these expectations that pushed the S&P 500 to its record at the start of the month. The comparison between the two data points is the key to the day: investors continue to price in growing earnings, but are reducing their willingness to finance AI spending without evidence of returns.
Several questions that the material does not clarify remain to be verified: it does not indicate which specific quarterly results, beyond those cited, triggered the acceleration in selling, nor whether the correction is destined to run its course or spread to other sectors. There is also no indication of the timeframe in which companies expect AI investments to translate into revenue. The source cites a contribution from Associated Press to the drafting of the text.
