US tech sell-off wipes nearly $1tn as AI spending doubts grow

A sell-off in US technology shares wiped nearly $1tn from the Nasdaq exchange in a single week, The Guardian reports, after earnings from several of the largest tech companies disappointed investors. Behind the selling is one growing doubt: whether the billions being spent on artificial intelligence will pay off quickly enough.

What happened

According to The Guardian, the slide began earlier in October and picked up pace once leading tech firms published their quarterly results. On Friday 30 October, the S&P 500, the index of the 500 most valuable companies in the US, fell by more than 1%, losing hundreds of billions of dollars in market value. The tech-heavy Nasdaq composite did worse, dropping more than 3%. The Dow Jones Industrial Average fell by less.

The numbers over a longer period look worse still. The Guardian reports that the decline has taken about $2tn off the Nasdaq in a month. More than $2tn in market value was set to be wiped from the Nasdaq 100 in October alone, which the paper notes is slightly more than SpaceX’s entire market value. By Friday the index had fallen more than 5.8% for the month. The S&P 500 was on track to lose its gain for October, even though it reached an all-time high earlier in the same month.

Intel took the biggest hit among the individual companies. Its shares fell nearly 30%, putting the chipmaker close to its worst day since 1974. The drop came even though Intel reported a stronger profit for the latest quarter than analysts had expected. Investors reacted to its profit forecast for the final three months of the year instead, which The Guardian says fell far short of analyst expectations.

Amazon fell 1.8% after reporting a weaker summer profit than analysts had expected and disclosing that it had spent more this year than planned. Alphabet, Google’s parent company, had already had a bruising day on Thursday. Its stock fell more than 12%, its worst day on record, wiping $500bn from its market capitalisation, after it told investors it had burned through more cash in the summer than in the spring because of heavy investment in AI.

Nvidia, the chipmaker whose products have made it the best-known winner of the AI boom and which was previously worth about $5tn, fell 3.1%. The Guardian describes that drop as the heaviest single force pulling the S&P 500 down. The rest of Wall Street had a mixed day, with the index roughly evenly split between rising and falling shares.

Why it matters if you live in United Kingdom

The Guardian’s report is about US markets and does not discuss British shares or the London Stock Exchange directly. The companies at the centre of the story are global businesses, though, and many people in the UK use their services every day, from Amazon shopping and deliveries to Google search and Meta’s social platforms.

The main concern The Guardian identifies applies wherever these companies operate. Meta Platforms, Alphabet and Amazon, which the report calls hyperscalers, have all raised their spending forecasts again as they race to build AI infrastructure. Investors are now asking whether those hundreds of billions of dollars will produce enough profit and productivity to justify the cost. For anyone in the UK whose job, business or savings are tied to the AI build-out, that question matters a great deal.

The report also links the pressure on chip companies and other data centre winners to worries that high interest rates could slow the construction of new data centres. Interest rates and borrowing costs matter to households in every country, and The Guardian notes that people around the world are feeling discouraged about high inflation and high fuel prices. Many internationals in the UK will recognise that pressure from their own monthly bills.

If you hold investments that track US shares or the big technology names, this is the kind of week that shows how concentrated those holdings can be. The Guardian’s figures show how far a few companies can move an entire index: Nvidia’s drop alone weighed more heavily on the S&P 500 than any other stock.

What to watch next

Spending is the first thing to watch. The hyperscalers have just raised their AI investment plans again, and the market reaction suggests investors want evidence of returns, not just bigger budgets. Any change in tone from Meta, Alphabet or Amazon on how much they plan to spend, and when that spending will turn into profit, is likely to move their share prices.

Interest rates come next. The Guardian links part of the pressure on chipmakers to fears that high rates will slow the data centre boom, so any signal on borrowing costs in the US will feed straight into how investors value AI-related companies.

The third thing is the gap between expectations and results. The Guardian notes that hopes are still high for US companies to grow their profits, and it was those hopes that pushed the S&P 500 to its record earlier in October. Intel’s case shows that beating expectations for the past quarter is not enough if the outlook disappoints. Whether October turns out to be a correction or the start of a longer reassessment of the AI trade will depend on what companies report and forecast in the months ahead. For more coverage of AI and technology markets, visit Mylistingo.

Source: The Guardian