AI cost fears trigger sharp fall in US tech stocks
US technology stocks fell sharply on Friday as investors grew increasingly concerned about the rising cost of building out artificial intelligence (AI) infrastructure. The tech-heavy Nasdaq opened at its lowest level in more than two months, down 2.5%, while several major companies suffered steep declines.
Intel was among the worst hit. Its shares fell as much as 30% in early trading, extending an overnight slide, after the chipmaker warned of a weaker computer market even as it plans to increase spending on AI. The company was on track to lose more than $130bn in market value after its earnings update unsettled investors.
On Thursday, Intel finance chief David Zinsner said the firm did not expect to bring in more cash than it spent this year and forecast lower-than-expected revenue for the fourth quarter. "Looking ahead, we see the PC slowdown continuing at least through the first half of next year," he said in the company's third-quarter earnings report. During the earnings call, he said Intel had significantly ramped up investment in equipment in the third quarter and expected that to be "even more significant" in the following three months.
Amazon shares fell as much as 6% before recovering somewhat after its Thursday evening earnings report fell short of investor expectations. The company disclosed that it was spending more cash than it was making, and that spending had increased six-fold over three months. Amazon shares were still down about 1.6% in Friday trading.
The losses followed a sharp decline in Alphabet, Google's parent company, whose value plunged by more than $500bn on Thursday. The company revealed that its own AI summaries were affecting its core search advertising revenue. Alphabet stock continued to fall in early trading on Friday, down 1% after Thursday's massive slide.
Other technology stocks also dropped. Reddit fell 26% after the social media platform reported weaker-than-expected daily user figures and warned that Google's growing AI-driven search was hurting referral traffic. Online gaming platform Roblox fell nearly 20% as its daily active user numbers declined.
Several major tech firms reported earnings this week, including Microsoft. Analysts said questions were growing about the returns from huge investments in AI. Chris Low of investment management firm FHN Financial said most of the market reaction was to the biggest tech players such as Amazon and Google. He told Reuters the companies were "showing some pretty significant growing pains as they aggressively pursue the AI build-out". "The thinking is that these signs suggest that the entire sector is going to slow down," he said.
The falls come amid a broader debate over AI spending. Investors have bet that AI will boost productivity and profits, helping drive US stock market gains in recent months. But the latest earnings reports have highlighted the costs. Companies are spending heavily on data centres, chips and equipment, and investors are asking when those outlays will translate into earnings.
The scale of the market reaction was notable. Intel's potential $130bn loss in value would be a major decline for a chipmaker, while Alphabet's $500bn drop underscored how sensitive investors have become to any sign that AI could disrupt existing businesses, including search advertising. Reddit's warning about referral traffic showed that the effects are already being felt beyond the biggest companies.
The Nasdaq's decline was not confined to a single sector. The sell-off spread across social media, gaming and chipmaking, reflecting concerns that the entire technology sector may face slower growth as companies adjust to the costs of AI. For now, the market is signalling caution, with companies that have announced heavy AI spending facing scrutiny over when those investments will pay off.
