The tech-heavy Nasdaq is poised for significant losses at Friday's open, driven by investor concerns over escalating costs associated with artificial intelligence infrastructure and the timeline for returns. Amazon's aggressive AI spending plan and Intel's cash burn warning have intensified these concerns. Shares of Amazon.com plummeted 6.5% in premarket trading following a sharp cash outflow in the third quarter and a signal of increased capital expenditure next year.
Intel's stock tanked more than 25% after the chipmaker warned of cash burn this year due to a weak market for personal computers, manufacturing bottlenecks, and heavy spending to expand production. Several companies have tapped the bond market to finance their hefty AI investments, fuelling concerns that higher borrowing costs could make such spending harder to justify. This development has significant implications for the tech industry, as companies navigate the challenges of investing in AI.
The combined market value of Amazon and Intel was set to decline by about $300bn, potentially erasing roughly $1-trillion from the Nasdaq-100. This comes on top of the index's nearly $1.4-trillion loss in market value so far this month. Art Hogan, chief market strategist at B Riley Wealth, attributed the decline to a rotation out of an extremely popular technology trade and into safer havens.
Alphabet slipped 1% after a record selloff in the previous session, driven by disappointing results in its search-advertising business and a sharp increase in cash outflows. Meta also reported cash burn in the September quarter, while Microsoft delivered a big cash-flow beat, though it raised $25bn through a debt sale. This highlights the varying impact of AI spending on different tech companies.
The broader semiconductor market was under pressure, with Nvidia down 3.2% and AMD sliding 8.3%. Server makers Dell and HP lost 11.8% and 9.5%, respectively. In contrast, energy giants Chevron and Exxon Mobil rose 1.6% and 2%, respectively, after reporting third-quarter profits above estimates. This divergence in performance underscores the complex landscape of the tech industry.
At 8.15am US times, Dow E-minis were down 42 points, or 0.08%, S&P 500 E-minis were down 86.5 points, or 1.12%, and Nasdaq 100 E-minis were down 768.75 points, or 2.6%. Despite this, the S&P 500 and the Nasdaq were on course for weekly gains, as the AI trade got a brief reprieve earlier this week when Anthropic unveiled its US IPO filing.
The concerns around AI spending coincide with expectations that the US Federal Reserve would raise interest rates by more than 50 basis points by mid-2027. Nine of the 11 S&P 500 sectors were set for monthly gains, barring communication services and technology. Social media platform Reddit slid 21.7% after CEO Steve Huffman warned that total daily active unique visitors could fall by a low double-digit percentage in the fourth quarter.
Key points
- Nasdaq faces potential $1-trillion hit due to AI spending concerns
- Amazon and Intel warn on AI costs, driving market decline
- Tech industry navigates challenges of investing in AI amidst rising borrowing costs
