Treasury Yield Falls to 4.91% as Tech Shares Retreat and AI Spending Concerns Mount
Key Facts
The Nasdaq Composite fell 1.4% at the close of trading Thursday, October 29, while the S&P 500 and Dow Jones each slipped 0.3%, as investor concerns mounted that large and growing spending on artificial intelligence may not generate sufficient returns. Reuters said investors were focusing on the expected returns from the huge investments needed to build AI capabilities. The pressure came as shares of major companies fell after results and forecasts failed to meet market expectations. Alphabet was the biggest factor behind Thursday’s losses, with its shares suffering their worst drop on record after summer growth came in below analysts’ expectations. The company’s Class A shares fell more than 12% during the session, according to the Associated Press.
The sell-off extended to premarket trading Friday, with Nasdaq futures down 2.3% and S&P 500 futures falling 1%, while Dow Jones futures were steady. Amazon shares fell about 7% before the open after the company gave a cautious forecast for fourth-quarter sales and reported quarterly results below analysts’ expectations. Intel shares also fell more than 25% before trading began, after the company forecast a weaker-than-expected fourth quarter amid continued weakness in the personal computer market. These moves reflect sector-wide concerns about the scale of AI spending alongside factors specific to individual companies. In the previous session, the semiconductor index fell 1.4%, ending a four-day winning streak, while the Russell 2000 index of small-cap companies rose 1.0%, Reuters reported.
By contrast, the yield on 10-year U.S. Treasury notes fell more than 7 basis points in Tokyo trading Friday to 4.91%, according to Reuters. That brought its decline to about 37 basis points in October. Investors’ move toward safety was linked to concerns that rising AI spending would not generate sufficient returns, while Reuters noted a divide between companies funding their ambitions from cash flow and those burning cash or borrowing to finance them. The drop in yields puts bond moves alongside the decline in technology shares during the session, despite the different measurement times of Thursday’s close and Friday’s Tokyo trading. U.S. futures, meanwhile, were reflecting pressure ahead of Friday’s open.
Amazon’s results offer a mixed picture of this test: sales at its AWS cloud computing business rose 39.3% to 46 billion dollars in the quarter ended September 30, compared with growth of 37% in the previous quarter. The company said this was its fastest growth in about five years. At the same time, its free cash flow deficit reached 42.4 billion dollars in the twelve months ended September 30, while the CEO expects capital spending of 220 billion dollars during the year, most of it going toward building data centers for AI. These figures explain why investors are focused on whether infrastructure expansion will translate into cash flow and returns commensurate with its cost. The cautious fourth-quarter sales forecast added another factor weighing on the stock.
Amazon expects fourth-quarter sales of between 240 and 247 billion dollars, an annual increase of between 12% and 16%, while analysts had expected 244.16 billion dollars. Across the wider technology sector, Microsoft reported on October 28 revenue of 92.3 billion dollars for the quarter ended September 30, up 19% year over year, and growth of 48% in Azure revenue. The company’s CFO said expected spending for the calendar year was about 170 billion dollars, attributing it to delays in external hosting capacity. These figures highlight the scale of investment in computing infrastructure, alongside differences among companies in business growth, spending and cash flow. The returns those investments can generate remain a key investor concern that Reuters linked to the sell-off.
Looking to the sector’s next sentiment test, Reuters said a potential public listing by Anthropic could be the next major test for investors. This follows a sell-off fueled by concerns about returns on capital spending, while company forecasts and indicators of their ability to fund expansion are likely to remain part of the market debate. Reuters did not specify a date for the potential listing, but described it as the next test of investor sentiment toward AI. The anticipation reflects the market’s continued sensitivity to the scale of investment directed toward the sector and the returns expected from it. Company share performance and cash flows are also central to investors’ focus on upcoming developments.