Technology shares came under heavy pressure on Friday as disappointing results from Alphabet, Amazon and Intel intensified concerns over whether the huge sums being invested in artificial intelligence will deliver the returns expected by investors.
The Nasdaq Composite fell more than 830 points, or 3.2 per cent, in midday trading. The S&P 500 was down 1.9 per cent, while the Dow Jones Industrial Average fell 0.9 per cent in afternoon trading.
Intel was among the biggest casualties, with its shares plunging more than 30 per cent. Amazon dropped 2.2 per cent after reporting weaker-than-expected profits, while Reddit and Roblox fell 30 per cent and 20 per cent respectively.
Alphabet’s shares also remained under pressure after its Class A stock plunged more than 12 per cent on Thursday. That was the company’s worst session since it went public as Google in 2004 and wiped about $500 billion from its market value.
Adam Crisafulli, head of Vital Knowledge, described the period as “one of the worst tech earnings seasons in memory” in a research note, citing underwhelming results from several prominent companies.
The results have raised concerns that massive spending on AI infrastructure may not produce the profits Wall Street is anticipating. Investors are also questioning the sustainability of debt being taken on by companies to fund data-centre capital expenditure.
“Mega-cap stocks have faced increased selling pressure over the past two weeks as elevated AI-related spending and rising financing costs raise concerns over the path to profitability,” said Adam Turnquist, chief cross-asset strategist at LPL Financial.
He said recent earnings reports had highlighted slowing growth in some of the core businesses of major cloud technology companies, known as hyperscalers.
Investors had been relying on continued rapid growth in AI to support a stock market that has reached record highs. But Ulrike Hoffmann-Burchardi, chief investment officer for the Americas and global head of equities at UBS’s Chief Investment Office, advised clients this week to “diversify beyond AI”.
She said UBS remained positive about the long-term growth of AI, but warned that high expectations and potentially wide differences in individual companies’ performance created risks for investors whose portfolios were concentrated in a small number of shares.
