US tech stocks lose more than $1tn as AI spending fears hit markets

Intel shares plunge 29%

US tech stocks lost more than $1tn in market value on Friday as investors questioned whether heavy AI spending would deliver sufficient returns, with Intel leading the sell-off amid weak revenue guidance.

US technology stocks suffered a sharp sell-off on Friday, with more than $1tn wiped off their combined market value as investors grew increasingly concerned about whether huge investments in AI would deliver the profits companies have promised.

Chipmakers bore the brunt of the downturn, with Intel shares plunging 28.6%.

Investors appeared more concerned about Intel’s forward guidance than its latest quarterly performance. Intel forecast fourth-quarter revenue of between $15bn and $16bn, below analysts' expectations of approximately $17bn.

The company's finance chief, David Zinsner, had warned on Thursday that Intel did not expect to generate more cash than it spent this year. He also indicated that revenue in the coming quarter would be weaker than analysts had anticipated.

"Looking ahead, we see the PC slowdown continuing at least through the first half of next year," he said in the company's third-quarter earnings report.

Zinsner also told investors that Intel had significantly increased its investment in equipment during the third quarter and expected spending to rise even further over the following three months.

The company warned that weakness in the personal computer market could continue into 2027, adding to concerns about demand across the semiconductor industry.

Other chipmakers also experienced significant losses.

SanDisk shares fell 13.8%, while Marvell declined by about 10%. AMD and Arm lost around 10% each, while Micron dropped 5.3%.

Nvidia, the world's most valuable chipmaker and a major beneficiary of the AI boom, fell 4.2%.

Meanwhile, Alphabet shares slipped another 1.4% on Friday, extending losses after a 12% plunge in the previous session. The sell-off came after the company reported weaker-than-expected advertising revenue and a sharp deterioration in cash flow.

Questions about AI investment returns

Growing concerns about the amount of money technology companies are committing to AI infrastructure have become a major source of uncertainty for investors.

Companies including Alphabet, Amazon and Microsoft have been spending billions of dollars on datacentres, specialised chips, servers and networking equipment to expand their AI capabilities.

However, investors are increasingly questioning whether the potential revenue from these services will justify the enormous costs.

Amazon faced particular scrutiny after revealing that its spending had increased substantially, with the company reporting that it had spent more cash than it generated. The online retail and cloud giant has committed to investing $220bn this year, including spending on AI datacentres, network equipment and servers.

Its free cash flow recorded an outflow of $42.4bn over the previous 12 months, largely reflecting increased expenditure on property and equipment. Amazon also reported earnings of $1.89 per share, falling short of analysts' expectations of $1.96.

Some analysts have warned that the industry could be experiencing an AI bubble, in which company valuations become disconnected from the profits their investments can realistically generate.

Kathleen Brooks, research director at trading firm XTB, said the AI trade had experienced considerable volatility in recent months, with investors becoming less tolerant of disappointing financial results.

"Investors have turned ruthless, punishing any signs of disappointment in [third quarter] earnings," she said.

"The AI trade has had a good run in recent years, but now investors want payback, and companies like Alphabet and Intel are in the crosshairs."

However, for perspective it remains true that despite the latest losses, the market valuations of many major technology companies remain significantly higher than they were a year ago.