Stock Market Nasdaq Dives as AI Spending Faces Scrutiny
The Nasdaq Composite fell more than 3% Friday as disappointing earnings and rising AI spending forecasts unsettled investors. The tech-heavy exchange lost…
The stock market Nasdaq dives more than 3% on Friday as disappointing technology earnings deepen questions about whether heavy artificial intelligence spending can generate returns quickly enough. The sell-off erased nearly $1tn in value from the tech-heavy exchange in one week and about $2tn in a month.
The drop followed a technology sell-off that began earlier in the month and gathered pace after earnings from leading companies disappointed investors. The S&P 500 fell more than 1% Friday, while the Dow Jones Industrial Average fell less.
Why did the Nasdaq fall?
Investors are weighing expanding AI budgets against the profits and productivity those investments may deliver. Meta Platforms, Alphabet and Amazon raised spending forecasts further as they race to expand AI infrastructure, sharpening scrutiny of the billions of dollars going into the technology.
The pressure reached companies across the technology sector. Intel tumbled nearly 30%, even though the chipmaker reported a stronger profit for its latest quarter than analysts expected. Its forecast for profit in the final three months of the year fell far short of analysts’ expectations.
Amazon shares fell 1.8% after the company reported a weaker profit for the summer than analysts expected. Amazon also disclosed that it had spent more this year than anticipated.
Alphabet had suffered an even steeper decline a day earlier. Its stock dropped more than 12%, wiping $500bn from its market capitalization, after the company told investors it had used more cash during the summer than during the spring because of mammoth AI investments.
AI spending puts tech valuations under pressure
The earnings and forecasts have put a sharper focus on whether large investments in AI can produce enough profit and productivity to justify their cost. Chipmakers and other companies that benefited from the rush to build AI data centers have also come under pressure, as investors worry that high interest rates could slow further construction.
That concern matters beyond individual technology companies. The weakness in technology shares dragged down the broader S&P 500, even as its stocks were roughly evenly split between gainers and losers. Nvidia fell 3.1%, making it the heaviest force pulling the index lower. The chipmaker had previously been worth about $5tn, and its chips have made it a prominent beneficiary of the AI investment surge.
The S&P 500 was on track to erase its gain for October, despite reaching an all-time high during the month. The Nasdaq Composite’s decline came as the broader technology sell-off removed hundreds of billions of dollars in market value from US markets on Friday.
The Nasdaq 100 was set to lose more than $2tn in market value during October as big technology earnings intensified investor scrutiny of AI spending. That potential loss would be slightly more than SpaceX’s entire market value. The index had fallen more than 5.8% so far in October.
At the same time, expectations remain high for US companies to deliver bigger profits, even as people around the world feel discouraged about high inflation and high fuel prices. Those expectations helped drive the S&P 500 to its record earlier this month.
