Wall Street suffers tech wipeout as earnings fears grow

Wall Street experienced its most significant decline since June, driven by a sell-off in technology stocks amid concerns that the recent surge in AI technology investments had inflated stock prices excessively. The S&P 500 index fell by 1.8 percent, marking its worst performance since June and concluding a third consecutive week of losses. The Nasdaq composite index, heavily influenced by tech stocks, dropped by 2.9 percent, while the Dow Jones Industrial Average lost 572 points, equivalent to a 1.1 percent decrease.

Despite the US stock market being only 3.1 percent shy of its all-time high, growing instability is evident, especially as the midterm elections approach on Tuesday. Voter apprehensions regarding AI have become a bipartisan concern, and President Donald Trump has historically viewed stock market performance as a reflection of his administration's success.

Leading the market downturn was Intel, whose shares plummeted by 28.6 percent, marking its steepest decline since 1974. The chipmaker's forecast for profits in the final quarter of the year fell short of analysts' expectations, with CEO Lip-Bu Tan noting ongoing pressures within the personal-computer sector. This sharp decline occurred despite the company reporting stronger-than-expected profits for the recent quarter.

Amazon's stock also faced challenges, decreasing by 1.4 percent after the company reported a lower-than-expected profit for the summer. More troubling for investors was Amazon's disclosure that it had burned through $42.4 billion in cash over the past year, a metric known as free cash flow. The company spent $94.8 billion on property and equipment, primarily focused on investments in AI technology.

Earlier in the week, Alphabet, the parent company of Google and YouTube, saw its stock drop over 12 percent, its worst day on record, following news of increased cash burn compared to the previous quarter. This decline added further pressure to the S&P 500, as the company also cited substantial investments in AI.

Growing concerns are emerging about whether the massive investments totaling hundreds of billions of dollars will yield sufficient profits and productivity to justify their costs. Additionally, stocks of computer chip companies and others benefiting from the AI data center boom are facing scrutiny, particularly due to fears that high interest rates may hinder further investments in data center expansion.

"We are transitioning from the hopes and dreams phase of the AI trade to the 'show me' phase," remarked Joe Tigay, a portfolio manager at Equity Armor Investments, in a communication to investors.

Nvidia, a prominent chip manufacturer symbolizing the AI craze, saw its stock fall by 4.2 percent, contributing significantly to the downward pressure on the S&P 500, even more than Intel's drop.

In the cryptocurrency sector, stocks also fell sharply following a hack of the world's largest crypto exchange. The price of Bitcoin dropped from over $86,000 earlier this month to below $77,000. A US-based blockchain intelligence firm suggested that a North Korean unit might be behind the attack, which affected more than $6 billion worth of cryptocurrency at Binance. Coinbase Global's shares fell by 10.6 percent despite reporting better-than-expected quarterly results. Strategy, which claims to own around 4 percent of the total Bitcoin supply, saw its stock decrease by 7.8 percent while announcing that its chief financial officer would resign next week for personal reasons.

Across the Atlantic, European indexes displayed mixed results following pronounced fluctuations in Asian markets. South Korea's Kospi index fell by 3.5 percent due to similar concerns regarding AI's impact on its tech-heavy market, while Hong Kong's Hang Seng index rose by 1.5 percent. Japan's Nikkei 225 index declined by 2.1 percent after the Bank of Japan opted to maintain steady interest rates, mirroring recent decisions by the Federal Reserve and the European Central Bank.