Sell-off for tech stocks deepens as Nasdaq heads toward its worst day since June

NEW YORK — The decline in technology stocks intensified on Friday, driven by concerns that the recent enthusiasm for AI investments may have inflated stock prices excessively. The S&P 500 index fell by 1.6%, putting it on course to reverse its gains for October, despite having reached an all-time high earlier in the month. The Nasdaq composite dropped 2.6%, heading towards its worst trading day since June, while the Dow Jones Industrial Average decreased by 359 points, or 0.7%, as of 12:30 p.m. Eastern time.

Intel's stock was a significant contributor to the downturn, plummeting 29.7% and nearing its worst day since 1974. The chipmaker's forecast for profits in the last quarter of the year failed to meet analysts' expectations, with CEO Lip-Bu Tan noting ongoing pressures in the personal computer sector that continue to dampen demand for Intel's processors. This steep decline occurred despite Intel reporting a stronger-than-expected profit for the most recent quarter.

Amazon shares fell by 1.9% after the company announced a profit for the summer that fell short of analysts' predictions. More troubling for investors was Amazon's report of a significant cash burn of $42.4 billion over the past year, a figure derived from its free cash flow measurement. The company attributed much of its spending to substantial investments in AI technology, totaling $94.8 billion on property and equipment.

On Thursday, Alphabet, the parent company of Google and YouTube, saw its stock drop over 12%, marking its worst day ever, as it reported higher cash expenditures in the summer compared to the spring. Like Amazon, Alphabet pointed to massive investments in AI as a key factor behind its financial performance.

Investor anxiety is mounting over whether the substantial investments in AI will yield sufficient profits and productivity to justify the spending. Additionally, shares of chip manufacturers and other beneficiaries of the AI data center boom are under pressure due to worries that rising interest rates could hinder further expansion of these data centers. Joe Tigay, a portfolio manager at Equity Armor Investments, commented, “We’re moving out of the hopes and dreams phase of the AI trade and into the ‘show me’ phase.”

Nvidia, a leading player in the AI chip market, saw its stock fall by 4.2%, significantly contributing to the decline of the S&P 500, even more so than Intel.

Meanwhile, the cryptocurrency market faced its own challenges following a major hack of Binance, the largest crypto exchange in the world. Bitcoin's value dropped from over $86,000 earlier this month to around $77,000. A blockchain intelligence firm based in the U.S. suggested that a North Korean group might be behind the attack, which affected more than $6 billion in crypto assets.

Despite the turmoil in tech stocks, companies outside the sector displayed resilience, with many reporting better-than-expected summer profits. The S&P 500 was almost evenly divided between rising and falling stocks. Notably, ExxonMobil's shares rose by 1.5%, and Chevron's climbed 1.6% following stronger-than-anticipated profits. Mondelez International, known for Oreo cookies and Ritz crackers, saw its stock increase by 3.7% after reporting robust growth, while Colgate-Palmolive's shares rose by 3.2% due to higher prices contributing to better-than-expected revenue and profits.

Despite global concerns over inflation and high fuel prices, there is still optimism about U.S. companies' potential for increased profitability. This optimism was a key driver behind the S&P 500 reaching its record earlier this month.

In the bond market, Treasury yields decreased, indicating that investors were turning to U.S. government bonds for safer investments. The yield on the 10-year Treasury note fell to 4.95%, down from 4.98% the previous day and from over 5.30% earlier in the month. This decline occurred even as oil prices increased, with Brent crude rising by 2.7% to $113.79, nearing the upper end of its range since the onset of the Iran conflict, which has contributed to rising oil prices and inflation.

Internationally, stock indexes mostly declined in Europe, following volatile trading in Asia. South Korea's Kospi index dropped by 3.5% due to concerns surrounding AI's impact on its technology-heavy market, while Hong Kong's Hang Seng index rose by 1.5%. Japan's Nikkei 225 fell by 2.1% after the Bank of Japan opted to maintain interest rates, mirroring similar decisions made earlier in the week by the Federal Reserve and the European Central Bank.