Tech Giants Trigger Market Sell-Off Amid AI Boom Concerns

A wave of significant stock drops from major technology companies, including Alphabet, Amazon, and Intel, within a 48-hour period has shaken global markets, raising concerns about the sustainability of the artificial intelligence boom. Alphabet's stock experienced its steepest single-day decline in history, falling 12.6% on Thursday. Following this, Amazon and Intel saw their shares plummet in after-hours trading, sending ripples across Asian markets and Wall Street futures.

In South Korea, the KOSPI index plunged over 5%, prompting the Korea Exchange to activate a circuit breaker that halted computerized trading for five minutes after futures on the KOSPI 200 index dropped 5%. Samsung Electronics and SK Hynix were among the leading decliners. Tokyo's Nikkei fell 2.8%, and the broader Topix index dropped 1.3%. Advantest tumbled about 7%, Lasertec plunged around 13%, and SoftBank decreased by over 6%.

Conversely, Hong Kong's Hang Seng index rose 1.5%, with Chinese platform stocks attracting capital flowing out of chip-related shares. Nasdaq 100 futures were down 2.1%, S&P 500 futures fell 1%, and Dow Jones futures declined 0.2%. US Treasury bonds strengthened, with the 10-year yield dropping to approximately 4.9%, its lowest in over a month.

Intel's stock dropped approximately 21% in after-hours trading despite reporting a better-than-expected third quarter with revenues of $16.5 billion, a 21% increase year-over-year. The company's data center and AI segment saw a remarkable 78% surge. However, Intel's fourth-quarter forecast was alarming, projecting revenues between $15 billion and $16 billion, significantly below analyst expectations of $17.1 billion. CFO David Zinsner attributed part of the lowered forecast to a disruption at its Kiryat Gat, Israel facility, estimating a $600 million impact on revenue over two quarters and a 2-percentage point reduction in gross profit margin.

Amazon's stock fell about 6% in after-hours trading after its third-quarter revenue grew 12% to $201.9 billion, slightly missing analyst expectations. While its cloud division, AWS, experienced its fastest growth in nearly five years, investors focused on the company's capital expenditures, which reached $77.3 billion, about $20 billion more than anticipated, leading to a negative free cash flow of $42.4 billion over the last 12 months. CEO Anadi Jessi projected continued strong growth for AWS but signaled substantial investment increases through 2027.

The market's unease stems from the massive investments these tech giants are making, with Amazon and Alphabet alone expected to invest over $400 billion this year. Investors are now demanding proof that these expenditures will translate into revenue and cash flow, rather than just cloud growth. While operational data shows strong demand in areas like cloud computing and AI, concerns about market saturation and production bottlenecks, particularly for Intel, are contributing to the sell-off. Microsoft, however, recently lowered its investment forecast, signaling a potential shift among tech giants.