US tech stocks tumble as AI spending fears wipe $500B from Alphabet

Wall Street’s AI‑fuelled rally stalled on Friday as disappointing earnings and spiralling capital‑expenditure plans sent the Nasdaq tumbling for a second straight session, erasing more than $500 billion from Alphabet’s market capitalisation. The sell‑off rippled through the wider technology sector, dragging down Intel, Amazon, Reddit and several chipmakers, while investors scrambled for safety in Treasury bonds and commodities.

AI‑driven spending under fire

The three‑day earnings wave began with Alphabet’s Thursday revelation that AI‑generated “summary” answers were cannibalising its core search‑advertising revenue. The company said it expects to spend up to $205 billion on AI‑related projects this year, a figure that the BBC reported as “almost entirely related to AI”. The fallout was immediate: the stock’s market value fell by more than $500 billion, the largest single‑day loss in its history.

Media additions

Intel, which announced a muted fourth‑quarter outlook despite a 21% revenue jump, reacted even more sharply. Its shares tumbled 28.6%, wiping more than $130 billion off its market capitalisation, while the chipmaker warned that personal‑computer demand “will continue through the first half of next year”.

"Looking ahead, we see the PC slowdown continuing at least through the first half of next year,"

David Zinsner, finance chief, via BBC

Amazon’s third‑quarter report added fuel to the fire. Revenue rose 12% to $201.9 billion, but earnings per share missed consensus and free cash flow turned negative at $42.4 billion for the trailing twelve months. The retailer reaffirmed its $220 billion capital‑expenditure target for 2026, much of which is earmarked for AI data centres, network equipment and servers.

"Investors are sending an increasingly clear signal: robust demand for artificial intelligence is not enough on its own,"

Daniela Hathorn, senior market analyst at Capital.com, via Yahoo Finance

Market reaction across the board

Nasdaq‑100 futures fell between 2.6% and 2.7% in pre‑market trading, while the broader Nasdaq Composite slipped 2.9% on the day, marking its worst one‑day percentage decline since June 5. The S&P 500 dropped 1.8% and the Dow Jones Industrial Average fell 1.1%, as energy stocks rose on rising crude prices triggered by an attack on a tanker in the Strait of Hormuz.

Chipmakers bore the brunt of the tech rout. Nvidia declined 4.2%, AMD slid 10.9%, and Broadcom fell more than 5%. Server makers Dell and HP lost 10.8% and 9.6% respectively. Even companies that posted solid earnings, such as Rivian Automotive, could not reverse the sector‑wide pressure.

Outside technology, the energy sector found support. Exxon Mobil and Chevron posted quarterly earnings above expectations, lifting their shares 2.2% and 1.8% respectively. The rally in oil helped push Brent crude up 2.3% to $117.50 per barrel, while West Texas Intermediate rose 2% to $104.04.

Analyst perspectives clash

Some market observers view the turbulence as a temporary correction. Oliver Pursche, senior vice‑president at Wealthspire Advisors, told the Globe and Mail that “companies that are performing and meeting the very lofty expectations that have been set are doing well,” but warned that “those that are falling short … are getting punished.”

Even as the sell‑off deepened, a minority of voices remain optimistic about AI’s long‑term payoff. Kathleen Brookes, research director at XTB, noted that the Nasdaq is still up 7.8% over the past year, suggesting that “investors want payback, and companies like Alphabet and Intel are in the crosshairs.”

Numbers at a glance

Broader implications

The sell‑off has revived concerns of an “AI bubble”. Analysts at the BBC warned that the “bulk of what is happening … is reaction to some of the biggest tech players such as Amazon and Google” and that the sector may “slow down”. Meanwhile, the sharp fall in equity valuations drove a flight to safety: the benchmark 10‑year U.S. Treasury yield slipped to around 4.9%, its lowest level since early October, while the Japanese yen and Swiss franc appreciated modestly.

Crypto markets also felt the tremor. A reported $6.3 billion hack at Binance triggered a sell‑off in digital‑asset stocks, with Coinbase, Strategy and Robinhood each losing between 7% and 11%.

What to watch next

• Upcoming earnings from Microsoft, Meta and other hyperscalers, which will test whether AI spend translates into higher margins.
• Federal Reserve communications on interest rates; a further rate hike could tighten financing for AI‑heavy balance sheets.
• Geopolitical developments in the Strait of Hormuz, which could push oil higher and revive inflation concerns.
• Regulatory responses to large‑scale AI investment and data‑centre expansion, especially in Europe and Asia.

For investors, the key question remains whether the billions poured into AI infrastructure will generate the revenue and cash‑flow returns needed to sustain today’s lofty market valuations. Until clear evidence emerges, volatility is likely to linger, keeping the Nasdaq on edge and the broader market poised between growth hopes and a cautious reassessment.

Follow ongoing coverage in the Business section, including analysis of the Nasdaq‑100’s exposure to AI spending here.