Tech stocks' reality-check week as cracks in the AI trade widen

According to Wall Street CN, a week of disappointing earnings from Google, Amazon and Intel has widened the cracks in AI-related trading. In previous months, risk in AI trades had been concentrated among smaller companies carrying heavy debt, while the big technology firms had kept Wall Street steady with their strong profits. This week the picture changed: Google's search advertising growth slowed, Amazon's free cash flow turned sharply negative, and Intel forecast a prolonged slump in PC sales. Alphabet's search ad growth slowed partly because of the impact from queries in its AI mode, and the company said capital spending would increase 'significantly' in 2027. According to FactSet, combined earnings growth for the 'Magnificent Seven' in the third quarter was expected to be below that of the rest of the S&P 500.

Earlier in the week, Anthropic's IPO filing showed a sharp rise in revenue and briefly lifted market sentiment, but the subsequent reports from the big firms damped spirits again. On Thursday Alphabet's shares fell 13%, their worst one-day drop on record, wiping out roughly $489 billion in market value. On Friday October 30 Intel plunged 29%, its steepest single-day decline ever, and the Nasdaq Composite fell 2.9%, its worst day since June, with October on track to be the index's weakest month in over a year. The question being asked has shifted from how large AI demand is to who will pay for it. Rich Privorotsky, head of Delta One at Goldman Sachs, wrote that the cost of capital has 'objectively repriced, and there is no obvious solution.'