Wall Street sell-off deepens as investors question returns on ‘monster AI splurge’

By Lucy Bayly, John Towfighi, CNN

(CNN) — Wall Street suffered a steep day of losses Friday after the latest tech earnings reignited concerns that massive spending on AI may not deliver the returns that investors expect.

The Nasdaq Composite dropped roughly 3%, while the S&P 500 fell 1.8%. The Dow, which is less influenced by tech, was down 0.9%.

Intel plunged 30% Friday after issuing weaker guidance for the fourth quarter, citing weakness in the PC market and manufacturing bottlenecks. Amazon shares also dropped, falling 2% following an earnings report that indicated another increase in AI spending.

This comes after shares of Alphabet sank by more than 12% Thursday, wiping half a trillion dollars off the market value of America’s fourth-largest company. Investors were concerned about a slowdown in Google’s search advertising business and a ramp-up in AI spending. Alphabet shares fell another 1.5% on Friday.

Intel’s weaker-than-expected outlook and investors’ concerns about the sustainability of the AI boom rattled other semiconductor chipmakers: Nvidia shares dropped 4.6%, while a closely watched index of chipmakers sank 8%.

Alphabet, Microsoft, Meta and Amazon are collectively spending hundreds of billions of dollars on building data centers. Friday marks the final trading day of a bruising month for AI stocks as investors continue to scrutinize the enormous cost of the AI boom and demand evidence that those investments will eventually translate into profit.

Alphabet’s earnings results ignited concerns that Google’s core business of search advertising revenue is threatened by consumers using AI chatbots instead of traditional search.

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.”

As Big Tech ramps up its spending, investors are getting nervous about its impact to their balance sheets. Google just posted two quarters of negative free cash flow for the first time on record as AI spending accelerates while revenue isn’t growing as fast as expected.

Meta last week disclosed a quarter of negative free cash flow for the first time since 2012. Amazon on Thursday announced it had negative free cash flow of $42.4 billion over the past 12 months as the company ramps up AI spending.

“Investors don’t just want capex, they want to see the returns already,” Neil Wilson, a strategist at Saxo Markets, 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.”

Google and Meta are in a bear market, down more than 20% since their peaks in May and August 2025, respectively. In contrast to Google, Meta and Amazon, Microsoft this week announced $18.6 billion in positive free cash flow this past quarter, and its stock is down just 5% since its record high earlier this month.

“The AI trade is down, but not out,” said Paul Stanley, managing director at Arca, 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.”

“The midterm elections are the next big test for markets, but once they pass, uncertainty will decrease regardless of the outcome, which is positive for stocks,” he wrote.

As investors dumped tech stocks, they rotated into defensive parts of the market, like the consumer staples sector and government bonds.

Other corners of the tech industry have also been rattled as investors scrutinize earnings and demand evidence that companies will benefit, rather than be threatened, by developments in AI. Shares of software company ServiceNow plunged 27% on Thursday, their worst day on record, after the company’s profit results slightly missed Wall Street’s expectations.

“The market doesn’t like uncertainty,” said Ted Mortonson, a tech strategist at Baird. “People just get out of the way until they can figure it out.”

This is a developing story and will be updated.

The-CNN-Wire
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