Key Points
- The market value of the NASDAQ 100 index is expected to lose more than $2 trillion in October.
- Amazon, Google, and Intel intensify the selling of tech stocks
- AI Rising spending and debt concerns are unnerving Wall Street investors
As Wall Street grows more concerned about whether the artificial intelligence boom can generate sufficient profits to justify unprecedented infrastructure investments, the Nasdaq 100 index is expected to lose over $2 trillion in market value in October.
This index, which has a high technological weight, has fallen by more than 5.8% this month. The financial reports of Amazon, Alphabet, and Meta have revealed the increasing financial costs associated with building the infrastructure for AI.
Amazon and Intel further intensify the $2 trillion sell-off on NASDAQ
After their quarterly results highlighted different financial pressures, Amazon and Intel have become the latest companies to be hit by the sell-off in tech stocks.
Amazon's stock price fell by more than 6% in pre-market trading, while Intel's stock tumbled by over 25%. The two companies collectively experienced a market value loss of approximately $300 billion.
However, Amazon later recovered most of its losses, while Intel still faces significant pressure, indicating that the initial estimates of market value losses can change very quickly.
The sell-off stems from Amazon's announcement that its free cash flow has deteriorated to -$42.4 billion over the past 12 months, compared to $14.8 billion a year ago.
The company plans to invest $220 billion in the AI investment project, raising concerns in the market: when will the continuously expanding cloud computing power begin to generate cash returns?
Intel is facing another challenge. Its data center business is growing, but weak demand for PC, manufacturing constraints, and high capital requirements are casting a shadow over its prospects.
The combined market value loss of the two companies indicates that investors are re-evaluating the customers of AI's infrastructure, as well as the companies that provide them with computing hardware.
Large tech companies' AI expenditures trigger new concerns about debt
The pressure is not limited to Amazon and Intel alone.
Alphabet recorded a record daily percentage decline on Thursday, as investors reacted to underperforming search advertising and accelerating infrastructure spending.
Google's parent company announced quarterly capital expenditures of approximately $51.4 billion, resulting in a negative free cash flow.
The reversal of the company's cash flow highlights that even highly profitable technology companies may find it difficult to rely solely on internally generated cash to finance their expansion.
Debt financing is becoming another focus of attention.
Microsoft has advanced a $25 billion bond issuance, and other large technology companies are also increasingly relying on the capital market.
If it takes longer than expected for the new data center to start generating revenue, higher borrowing costs may reduce future investment returns.
JPMorgan Chase estimates that by 2026, global AI capital expenditure will reach approximately $900 billion, and by 2030, it will total $5.5 trillion.
Morgan Stanley separately predicts that next year's infrastructure spending for AI will exceed one trillion US dollars.
Is Wall Street shifting to a bearish view on artificial intelligence?
Despite the selling pressure, the market demand for AI infrastructure remains strong.
Amazon Web Services AWS reported a 39% year-on-year increase in revenue; Microsoft's cloud business continues to expand; Meta also maintains an optimistic advertising outlook.
The problem increasingly lies in the gap between strong demand and the funds that enterprises must invest.
This change became apparent during Nasdaq's decline on Thursday, when the significant drop of Alphabet overshadowed the positive developments in other sectors of the market.
