Tech stocks plunge on AI spending concerns amid weak earnings

U.S. technology stocks experienced a sharp sell-off on Thursday and Friday as major firms reported disappointing earnings and disclosed massive capital expenditures on artificial intelligence infrastructure. The Nasdaq Composite fell 2.4% to 2.5% on Friday, while the S&P 500 dropped 1.2% and the Dow Jones Industrial Average declined 0.3%.

Intel shares plunged nearly 30%, losing approximately $130 billion in market value, after the chipmaker warned of a weaker-than-expected fourth-quarter revenue outlook and disclosed that it would not generate positive free cash flow for the year despite ramping up equipment investment. The company's finance chief, David Zinsner, cited a continuing PC market slowdown extending into the first half of 2027 and significantly increased capital expenditures. Amazon fell 4% to 6% after reporting earnings that missed expectations and revealed sixfold spending increases over three months. Alphabet (Google) continued losses from Thursday's $500 billion market value decline after disclosing that its AI-powered search summaries were affecting core search advertising revenue, while the stock fell an additional 1% on Friday.

The broader sell-off reflects intensifying investor scrutiny of AI spending efficiency. Reddit stock fell 26% after warning that Google's AI-driven search was hurting referral traffic and reporting weaker-than-expected daily user figures. Roblox declined nearly 20% on declining daily active users. ServiceNow dropped nearly 25% despite 20% year-over-year revenue growth to $4.1 billion, signaling that revenue growth alone no longer satisfies market expectations concerning valuations and capital efficiency. Memory sector stocks including Micron and SanDisk slid over 5%.

Microsoft provided a contrasting performance, beating analyst expectations with strong Azure cloud revenue growth that reinforced investor confidence in AI monetization. Analysts noted that major tech firms are "showing pretty significant growing pains as they aggressively pursue the AI build-out," with concerns that sectoral slowdown may follow.

The sell-off occurred against a backdrop of persistent inflation pressures. U.S. third-quarter GDP expanded at an annualized 3.4% rate, exceeding forecasts of 3.2%, while PCE inflation accelerated from 3.4% to 3.6% year-over-year. Financial markets priced an approximately 80% probability of an additional Federal Reserve rate hike in December. In contrast, European markets gained ground, with the French CAC 40 rising over 1% and the German DAX advancing 1.3%.