Tech stocks tumble as AI spending and slowing core businesses raise investor concerns
A sharp sell-off in technology shares, led by Intel, Nvidia and major internet firms, reflects worries that massive AI investments may not yield returns quickly enough amid slowing advertising and consumer revenues.
U.S. technology shares suffered a steep decline on Friday, with the Nasdaq 100 falling 3.5% and the S&P 500 dropping 1.8%, marking the worst market slide since June. The sell-off was sparked by disappointing earnings and aggressive AI spending plans, prompting the Nasdaq to briefly breach the technical correction threshold.
Intel Corp. plunged 29% after issuing a weak sales outlook, its steepest drop in more than four decades, and the decline spread to other chipmakers such as Nvidia Corp. and Broadcom Inc. Amazon.com Inc. and Alphabet Inc. also fell after reaffirming sizable AI investment programmes despite signs of slowing growth in their core advertising and consumer operations.
Analysts noted that the core businesses of major U.S. tech firms—advertising, consumer and retail—are beginning to decelerate, raising doubts about whether the estimated $750 billion in AI spending this year will generate sufficient returns. "The revelation that these hyperscalers are seeing a slowdown in their core businesses means that the big payoff that everyone has been saying will come eventually is getting pushed even further down the road," said Matt Maley of Miller Tabak.
S&P Global Ratings downgraded its outlook on Meta Platforms Inc.'s AA- rating to negative, citing rising AI-related debt and uncertainty over the timing of revenue benefits. The agency warned that the company’s leverage is increasing and its ability to monetize AI investments appears weaker than that of peers.
Other firms are seeking financing alternatives to sustain AI expansion. Bloomberg reported that Amazon has arranged supplier financing that could allow borrowing up to $80 billion against hardware purchases, while Alphabet's Google is reportedly discussing a data-security initiative with the U.S. Defense Department linked to the $185 billion Golden Dome missile-defence programme.
UBS Chief Investment Office’s Ulrike Hoffmann-Burchardi warned of "mid-cycle capital expenditures indigestion" but said the broader equity outlook remains positive, urging investors to diversify beyond technology. Apple Inc. regained its status as the world’s most valuable company, attracting investors seeking perceived safety amid the AI-spending debate.
The market’s shift has also affected other asset classes. Cryptocurrency prices fell after Binance disclosed a record hack, and higher oil prices added to broader market anxiety. U.S. Treasuries were largely unchanged but posted a strong monthly gain as investors moved toward defensive assets.
Overall, while AI investment continues at a substantial scale, investors are increasingly demanding evidence that the spending will translate into sustainable earnings and cash flow, prompting a reassessment of valuations across the sector.