Nasdaq slides as tech earnings deepen doubts over AI spending returns

• Nasdaq Composite drops 2.86 per cent, its sharpest percentage decline since 5 June, as technology earnings and AI spending unsettle investors.

• Chipmakers and infrastructure suppliers suffer heavy losses, with Intel plunging 28.6 per cent and the semiconductor index falling 7.2 per cent.

• Rising borrowing requirements put the financing of AI expansion under scrutiny, even as demand for computing capacity remains strong.

US technology stocks fell sharply on Friday as disappointing corporate results and concerns about the financial returns from artificial intelligence investment prompted investors to reassess the sector’s valuations.

The Nasdaq Composite dropped 2.86 per cent to 25,437, recording its steepest single-day percentage fall since June 5. The S&P 500 declined 1.82 per cent to 7,580.07, while the Dow Jones Industrial Average lost 1.09 per cent to finish at 51,770.31.

The Nasdaq Composite closed 7.8 per cent below its October 6 record. Separately, the Nasdaq 100 was heading for an October decline exceeding 5.8 per cent, putting it on course to lose more than $2 trillion in market value during the month, according to Bloomberg.

Investors are demanding clearer evidence that the enormous sums committed to AI infrastructure will deliver sufficient profits. Amazon, Alphabet, Microsoft and Meta are together on track to spend more than $700 billion on capital investment this year, with much of that directed towards data centres, chips and computing capacity.

Amazon faced selling pressure after earnings missed expectations and the company signalled a further increase in AI investment. The reaction came despite continued acceleration at Amazon Web Services, its cloud computing division.

Alphabet’s results had already unsettled markets on Thursday, when concerns about its core search advertising business, rising cash outflows and spending outlook drove its biggest one-day percentage decline on record.

Chipmakers bear the brunt

Intel plunged 28.6 per cent on Friday after issuing a disappointing outlook, leading a broad retreat across semiconductor stocks.

AMD fell 10.9 per cent, Micron lost 5.3 per cent and Nvidia declined 4.2 per cent. The broader semiconductor index dropped 7.2 per cent, extending its monthly losses to more than 15 per cent.

Companies supplying equipment and capacity for the AI buildout also suffered. Dell fell 10.8 per cent, HP declined 9.6 per cent and data centre operator CoreWeave lost nearly 10 per cent.

The breadth of the losses reflected concern about both the scale of infrastructure commitments and the time companies may need to recover those investments.

Financing costs come into focus

Questions about the funding of AI expansion intensified following a Financial Times report that Blackstone had told investors Anthropic might initially fall short of an investment-grade credit rating after its planned stock market listing.

According to the report, Blackstone expects a rating in the double-B range or above, based on guidance from credit rating agencies. A double-B rating would place the company in the speculative-grade category, potentially increasing its borrowing costs.

The distinction matters given Anthropic’s plans to spend more than $800 billion on computing infrastructure through 2045. Fitch, Moody’s and S&P have not formally assigned the company a rating, the newspaper reported.

Separately, an $18-billion junior debt tranche in a chip financing transaction received a double-B-plus rating with a positive outlook from Kroll Bond Rating Agency and a double-B rating from Morningstar DBRS, according to people cited by the FT. Those assessments relate to the financing tranche rather than a formal corporate rating for Anthropic.

The wider sector is increasingly turning to capital markets. Meta, Amazon and Alphabet have issued hundreds of billions of dollars in bonds over the past four years, while Microsoft is reportedly preparing a $25-billion US investment-grade bond sale, its first in more than nine years.

Meta’s proposed record $97.5-billion fundraise has also drawn scrutiny over potential shareholder dilution and the funding demands of its investment programme.

Morgan Stanley estimates AI infrastructure spending will exceed $1 trillion next year. JPMorgan projects global AI capital expenditure of $5.5 trillion by 2030, including approximately $900 billion in 2026.

Demand remains resilient

The market retreat comes alongside continued growth in demand for computing services. Amazon’s cloud business accelerated, while Microsoft and SpaceX have shown signs of returns from their AI investments.

JPMorgan Asset Management’s John Bilton said companies, in aggregate, were not experiencing negative growth and demand for data continued to increase, Reuters reported.

Broader corporate earnings have also remained relatively strong. Of the 299 S&P 500 companies that had reported third-quarter results, 82 per cent exceeded consensus forecasts, according to LSEG figures cited by Reuters. Analysts expected year-on-year earnings growth of 31.6 per cent.

Crypto losses and rising oil add pressure

Cryptocurrency-linked shares weakened after Binance acknowledged a major security breach involving the theft of $6.3 billion. Coinbase, Strategy and Robinhood fell between 7.2 per cent and 10.6 per cent.

Oil prices climbed after Iran said four tankers had struck mines in the Strait of Hormuz. Brent crude rose 2.4 per cent to $117.64 a barrel, while US West Texas Intermediate gained 2.1 per cent to $104.12.

ExxonMobil advanced 2.2 per cent after reporting third-quarter profits of $15.4 billion, more than double the year-earlier figure, as higher oil prices and refining margins supported earnings amid the US-Iran war.

Overseas markets were mixed. South Korea’s Kospi fell 3.5 per cent and Japan’s Nikkei 225 lost 2.1 per cent, while Hong Kong’s Hang Seng Index gained 1.5 per cent.

With agency inputs