Nasdaq drops 2.86%, semiconductor index plunges 7.2%; Intel suffers worst decline in 52 years.
Concerns over cash flow intensify amid surging AI investment; market shifts focus from growth to ROI.
Despite U.S. corporate earnings generally surpassing expectations, the stock market took a heavy hit on the final trading day of October. Technology stocks led a fierce sell-off in New York, as Wall Street’s focus pivots from revenue growth to the ability of companies to recoup capital expenditures and generate sustainable cash flow amid the massive costs of artificial intelligence (AI) investments.
On the 30th (local time), the Nasdaq Composite plummeted 2.86%, marking its sharpest decline since June. The S&P 500 and the Dow Jones Industrial Average fell 1.82% and 1.09%, respectively, while the PHLX Semiconductor Sector index cratered by 7.2%. Market analysts attribute the sell-off to a combination of profit-taking on previously overextended tech stocks, end-of-month portfolio rebalancing, and growing investor anxiety ahead of next week’s U.S. midterm elections.
Intel shares crashed 28.6%, while AMD and Nvidia slid 10.9% and 4.2%, respectively. Conversely, oil and gas giants ExxonMobil and Chevron posted gains on the back of strong earnings. The market decline was not broad-based, but rather concentrated on the AI and semiconductor stocks that had previously fueled the year's rally.
Intel’s Historic Slump: Factory Incident and Weak PC Demand
Intel reported third-quarter revenue of $16.5 billion, a 21% increase year-on-year, with adjusted earnings per share beating market forecasts. However, investors reacted more to future guidance than to past performance.
Intel’s fourth-quarter revenue guidance, projected between $15 billion and $16 billion, fell short of the market’s estimated $17 billion. Compounding weak PC demand with production setbacks, the stock saw its largest single-day drop in roughly 52 years, dating back to 1974.
A specific drag on the outlook was an explosion at Intel's Kiryat Gat plant in Israel. The two-week production halt is expected to result in a revenue loss of approximately $600 million spanning the fourth quarter of this year and the first quarter of next year. Furthermore, the surge in memory prices has raised production costs for PC manufacturers, further straining recovery prospects.
Amazon triggered investor anxiety for different reasons. While third-quarter revenue for its cloud business, Amazon Web Services (AWS), rose 39% to $46 billion, the company reported a cumulative free cash flow deficit of $42.4 billion over the trailing 12 months.
Amazon’s capital expenditure for the year is projected to reach $220 billion. As spending on AI data center expansion balloons, the cash burden is intensifying despite the cloud business’s robust growth.
While the nature of their struggles differs—Intel facing production and demand issues, and Amazon grappling with the sheer cost of AI infrastructure—both companies underscored that strong historical earnings are no longer enough to satisfy current investor expectations.
The Burden of AI Investment: Scrutiny on Profitability Intensifies
The pressure of AI investment has evolved beyond isolated corporate issues. According to Capital Economics, capital expenditures by four tech giants—Microsoft, Meta, Amazon, and Alphabet—now account for over one-third of all capital spending by S&P 500 constituents. Some of these companies are increasingly relying on bond issuance to fund aggressive data center expansion.
The market landscape has shifted. While 82% of the 299 S&P 500 companies that have reported third-quarter earnings outperformed analyst expectations, the tech sell-off persisted. Keith Buchanan of Globalt Investments observed that while market sentiment was driven by hope for AI last year, the current market is focused on the difficult questions of who is funding the investment and who will ultimately capture the profits.
AI infrastructure firms facing high financing costs have been hit hardest. Data center operators CoreWeave and Nevius both dropped more than 30% during October. As skepticism regarding future profits grows, these companies are undergoing rapid valuation corrections.
The situation for domestic chipmakers is distinct from that of U.S. Big Tech. Samsung Electronics and SK hynix are currently benefiting from memory supply shortages and price increases driven by the expansion of AI investments. SK hynix has provided strong visibility into DRAM and HBM demand through 2029, while Samsung Electronics has also achieved record-breaking earnings supported by the growth of its AI memory business.
Nevertheless, the slump in U.S. tech stocks remains a risk for domestic semiconductor companies. There is a prevailing fear that skepticism over Big Tech’s profitability could lead to a future contraction in capital expenditures, ultimately reducing orders for memory chips. While U.S. Big Tech is being evaluated on its ability to recoup massive AI expenditures, domestic semiconductor firms are being weighed on how long this investment cycle can truly last.
