Nasdaq falls 3.1% as concerns grow over returns on AI spending
Key Facts
The Nasdaq Composite fell 3.1% at 1:20 p.m. Eastern time on October 30 and was heading for its worst day since June, according to the Associated Press. The decline came as selling in technology stocks widened amid concerns that the AI investment wave had pushed valuations beyond what expected returns could justify. The index had fallen 2.26% at the open to 25,592.486 points, according to a Reuters update. Reuters linked the pressure to Amazon's ambitious AI spending plan and Intel's warning about cash burn. The agency said the developments deepened investor concerns about the cost of building infrastructure and when it would generate returns.
Scrutiny extended beyond technology companies' valuations to their ability to finance investment and turn it into cash flow and returns. Reuters reported that the Nasdaq 100 fell more than 5.8% in October, while Meta, Alphabet and Amazon raised their spending projections to expand AI infrastructure. The agency estimated that more than two trillion dollars in the index's market value was at risk of being wiped out during the month as investors focused on how quickly those investments would generate returns. In this context, Reuters cited Morgan Stanley's forecast that global spending on AI infrastructure would exceed one trillion dollars in 2027. These figures put the scale of the capital bet at the center of the debate accompanying the selloff.
Share performance varied within the technology sector itself: Nvidia fell 4.8% at the time of the Associated Press report and was the biggest drag on the S&P 500, outweighing the effect of Intel's decline. Alphabet also came under pressure after its shares lost more than 12% in the previous session, their worst day ever, according to the agency. The Associated Press attributed the decline to the company telling investors that cash burn accelerated over the summer compared with the spring. The move brought renewed attention to the scale of capital spending companies are undertaking to expand their AI capabilities. Investors are now watching the impact of these plans on cash and returns alongside growth indicators.
By contrast, Exxon Mobil and Chevron shares rose in morning trading after the companies' quarterly results beat analysts' expectations, according to the Associated Press. Exxon shares gained 1.3% and Chevron rose 1.8%, with the agency attributing their performance to higher prices and record production. Exxon's third-quarter profit was 15.4 billion dollars, or 3.72 dollars per share, while adjusted profit reached 17.5 billion dollars, or 4.23 dollars per share. Chevron posted profit of 9.9 billion dollars, or 5.06 dollars per share, and revenue rose 36% to 67.8 billion dollars. The results underscored the market's differing response to energy companies, which were supported by prices and production, and technology companies, where concerns about the scale of cash spending dominated.
The selloff followed the Federal Reserve's October 28 decision to leave its target rate range at 3.75% to 4%, according to the central bank's statement. The statement was approved by a 10-to-two majority, with the two dissenting members favoring a quarter-point increase in the range. The Fed said economic activity was expanding at a solid pace, domestic spending remained resilient and capital investment was strong, while inflation remained elevated. In a reading released before the selloff, the Conference Board's consumer confidence index rose 7.5 points to 91.7 in October, compared with 84.2 in September. The present situation index increased 8.6 points to 120.4, while the expectations index rose 6.9 points to 72.6, partially reversing three consecutive monthly declines.
The Conference Board's chief economist said October's improvement in confidence was mainly linked to better assessments of current and expected business conditions, but noted that the long-term downward trend continued. The survey showed consumers planned to spend less on services and durable goods over the next six months amid high prices and persistent inflation. Consumers' 12-month inflation expectations also declined in October but remained at 5.8%. These indicators put the confidence reading in the context of a monthly improvement that did not dispel concerns about prices and spending. The U.S. October jobs report is due on November 6 at 8:30 a.m. Eastern time, according to the Bureau of Labor Statistics, the next economic release investors are watching.