Tech stocks see sharp losses as AI costs unsettle investors
US technology shares fell as investors weighed the cost of expanding artificial intelligence against signs of pressure on revenue and user growth. Intel…
Intel shares fell as much as 30% in early trading on Friday, October 30, as tech stocks see sharp losses amid growing concern over the cost of artificial intelligence expansion. The Nasdaq opened down 2.5%, its lowest level in more than two months, as investors assessed company results and spending plans.
The sell-off reaches beyond chipmakers. Amazon shares dropped as much as 6% before recovering after earnings reported on Thursday evening fell short of investor expectations. Reddit and Roblox also declined as both companies disclosed pressure on measures of user activity.
Why are tech stocks falling?
Investors are questioning whether the revenue from AI-related products will justify the growing expense of building and operating the technology. The latest declines followed several major technology companies reporting earnings this week, including Microsoft.
Intel warned of a weaker computer market even as it plans to increase AI spending. The company’s finance chief, David Zinsner, said on Thursday that Intel did not expect to bring in more cash than it spent this year and forecast lower-than-expected revenue for its fourth quarter.
“Looking ahead, we see the PC slowdown continuing at least through the first half of next year,” Zinsner said in Intel’s third-quarter earnings report. On the earnings call, he said the company had significantly increased investment in equipment during the third quarter and expected that spending to be “even more significant” in the following three months.
The scale of the market reaction was clear in Intel’s shares, which were on track to lose more than $130bn in value after the earnings update. The company’s warning placed pressure on investors weighing the cost of its planned expansion against a weaker outlook for computer demand.
How did other technology shares perform?
Reddit stock was down 26% after the social media platform reported weaker-than-expected daily user figures. Reddit also warned that Google’s growing AI-driven search was hurting referral traffic, a concern that links the expansion of AI tools to the way online platforms attract visitors.
Roblox shares fell nearly 20% as its daily active user numbers dropped. The declines show that investors were reacting not only to spending plans, but also to company-specific results and signs of softer user engagement.
Alphabet’s market value had fallen by more than $500bn on Thursday after the company said its AI summaries were affecting core search advertising revenue. Alphabet shares continued lower in early trading on Friday, down 1% after the previous day’s slide.
That mix of concerns has a direct bearing on the businesses behind familiar online services. Search advertising, referral traffic and active-user figures all feature in the latest reports, while companies are also committing more money to AI infrastructure. The market response suggests investors are scrutinizing both the costs and the returns reported by the largest technology firms.
Chris Low of investment management firm FHN Financial said much of the market movement was tied to major technology companies including Amazon and Google. He said they were “showing some pretty significant growing pains as they aggressively pursue the AI build-out”.
Low added: “The thinking is that these signs suggest that the entire sector is going to slow down.”
