AI fears hit Nasdaq’s worst month in almost a year
Wall Street experienced significant losses on Friday, as the most recent tech earnings reignited apprehensions regarding the potential returns on substantial investments in AI, which may not meet investor expectations. The Nasdaq Composite experienced a decline of 2.86%, while the S&P 500 saw a decrease of 1.82%, marking their most significant downturn since June. The Dow experienced a decline of 572 points, translating to approximately 1.1%. Just a few weeks ago, the Nasdaq and S&P 500 reached unprecedented levels. However, this month, markets experienced turbulence as apprehensions grew regarding elevated interest rates, technology firms depleting cash reserves due to substantial AI investments, and earnings and forecasts that fell short of expectations. The Nasdaq has experienced a decline of 7.8% from its peak earlier this month, marking its most significant monthly drop since March 2025. The S&P 500 has experienced a decline of approximately 3% from its recent peak.
Intel experienced a significant decline of 28.58% on Friday, marking its most substantial drop since 1974 and the second-largest in its history. This downturn followed the company’s announcement of weaker guidance for the fourth quarter, attributing the challenges to a downturn in the PC market, where elevated memory chip costs are adversely affecting consumer demand. Amazon shares declined by 1.4% after an earnings report revealed an uptick in AI expenditures, alongside sales and profit figures that fell short of analysts’ forecasts. This follows a decline in shares of Alphabet – the parent company of Google – which fell by over 12% on Thursday, resulting in a loss of half a trillion dollars in market value for America’s fourth-largest company. Investors expressed apprehension regarding a deceleration in Google’s search advertising sector alongside an increase in expenditures on artificial intelligence. Alphabet shares declined by an additional 1.4% on Friday, concluding their most challenging month on record. Investors’ apprehensions regarding the AI surge have unsettled other semiconductor manufacturers: Nvidia’s shares declined by 4.2%, whereas a key index tracking chipmakers fell by 7.2%.
Alphabet, Microsoft, Meta, and Amazon are collectively investing hundreds of billions of dollars in the construction of data centers. After enthusiastically supporting all things AI, Wall Street is becoming more selective regarding which companies are allocating resources judiciously and achieving measurable returns on investment. Friday marked the conclusion of a challenging month for AI stocks, as investors remain vigilant regarding the substantial expenses associated with the AI surge and seek tangible proof that these investments will ultimately yield profits. “We’re moving out of the hopes and dreams phase of the AI trade and into the ‘show me’ phase,” Joe Tigay said in a note. “Full order books are great, but investors want to see who can actually deliver, turn that demand into earnings and generate cash,” he said. Alphabet’s promise of returns from AI “is getting pushed even further down the road,” Matt Maley, chief strategist at Miller Tabak + Co, said in a note. “It raises the question as to whether the payout will be as big as they have been promising.” Alphabet’s promise of returns from AI “is getting pushed even further down the road,” stated Matt Maley in a note. “It prompts an inquiry into whether the payout will match the expectations that have been set.”
As major technology firms increase their expenditures, shareholders are expressing concerns regarding the implications for their financial statements. Alphabet has reported two consecutive quarters of negative free cash flow for the first time in its history, attributed to the rapid increase in AI expenditures, while revenue growth has not met expectations. Meta last week disclosed a quarter of negative free cash flow for the first time since 2012. Amazon on Thursday reported a negative free cash flow of $42.4 billion over the past 12 months, attributed to the company’s increased investments in AI. “Investors don’t just want capex, they want to see the returns already,” Neil Wilson said in a note. “For the wider AI trade, we are starting to see a more critical evaluation of the return on investment from this monster AI splurge.” Alphabet and Meta are currently experiencing a bear market, having declined over 20% from their respective peaks in May and August 2025. In contrast to Alphabet, Meta, and Amazon, Microsoft this week reported $18.6 billion in positive free cash flow for the past quarter, with its stock experiencing a decline of only 4% since reaching a record high earlier this month.
Investors are increasingly highlighting the competition among companies to secure capital through debt and equity markets, viewing this as an indication that the AI boom is transitioning into a new phase. Elevated interest rates are exerting pressure on the more speculative, debt-dependent sectors of the AI expansion, contributing to growing unease. Anthropic’s highly anticipated filing for its initial public offering on Monday provided a temporary uplift to tech stocks, but the sentiment shifted negatively midweek in response to Big Tech earnings. “The AI trade is down, but not out,” said Paul Stanley in a note Friday morning. “This is not the first tech and AI correction, and it won’t be the last. We are still in the very early stages of AI development, and pullbacks are par for the course.” Adding to market jitters Friday: Bitcoin fell more than 4% over the past day, hitting its lowest level in more than a month, after the world’s largest crypto exchange was hit by the biggest heist on record. Following a significant rally this year, investor expectations for chipmakers are on the rise, while companies find it increasingly challenging to meet Wall Street’s demands.
Despite a decline of nearly a third in value on Friday, Intel shares have experienced an increase of 78% year-to-date. “A lot of these names, Intel is no exception, they just had a phenomenal year already. So, there’s definitely some profit taking as a result,” said Mike Dickson. As investors divested from technology equities, they shifted their focus toward more defensive segments of the market, such as the consumer staples sector and government bonds. Other sectors of the tech industry have also experienced turbulence as investors closely examine earnings and seek proof that companies will gain from, rather than face challenges due to, advancements in AI. Shares of software company ServiceNow experienced a significant decline of 27% on Thursday, marking the most substantial drop in its history, following the announcement that the company’s profit results fell short of Wall Street’s expectations. ServiceNow experienced a decline of 4% on Friday. “The market doesn’t like uncertainty,” said Ted Mortonson. “People just get out of the way until they can figure it out.”
