Tech Rout Deepens as Earnings Turn AI Spending Into the Villain
Alphabet's third quarter looked strong on the surface: revenue of $127.6 billion, up 25% from a year earlier. But it missed Wall Street's expectations, and free cash flow turned negative to minus $9.07 billion. The stock plunged 12.6% on October 29, erasing about $500 billion in market value in the company's worst single-day rout on record. Investors were not punishing weak sales — they were punishing the cost of the AI buildout that consumed the cash.
Alphabet kept its 2026 capital-spending guidance of $195 billion to $205 billion, pointing to strong cloud and chip demand. Amazon struck the same note. Its third-quarter revenue rose 12% to $201.9 billion, with net income of $20.7 billion, both below analyst estimates. AWS sales rose 39% to $46 billion, while e-commerce sales rose 2% to $68.5 billion. CEO commentary highlighted growing traction in Bedrock, its AI model marketplace, and triple-digit percentage growth in its Graviton and Trainium chip business.
The numbers behind the narrative spooked the market. Amazon posted negative free cash flow of $42.4 billion on a trailing-twelve-month basis, spent over $77 billion in a single quarter, and is expected to spend about $220 billion in 2026. Its shares fell more than 7% after hours on missed profit and ad-revenue estimates. Intel fared worse, plunging around 20%, at one point down 23%, after weak fourth-quarter guidance blamed on a protracted PC slowdown and soaring memory prices driven by the AI data-center boom. The pattern was set a week earlier: Meta closed about 7% lower, Tesla fell 3.1%, Nvidia fell 4.4%, and the Nasdaq Composite dropped 2.6%, its steepest one-day decline since June 5, after Meta raised its spending forecast and disclosed about $825 billion in total future lease and contract commitments.
On October 30, tech shares slumped across Asia. South Korea's SK Hynix fell more than 7%, and Singapore's AEM tumbled as much as 11% before paring the loss to 7% by midday. Nasdaq futures sank 2%. Over the past month, the Invesco QQQ Trust is down 3.3% and the iShares Semiconductor ETF is down 9.6%. The yen rose and bonds surged toward their biggest monthly gain in nearly three years. A Gartner report warning that more than $3.5 trillion in AI infrastructure spending could face impairment by 2030 added to the gloom. Goldman Sachs projects hyperscaler capital spending rising from $768 billion in 2026 to $1.182 trillion in 2027, while Wells Fargo expects Meta's capex to jump from about $145 billion in 2026 to $249 billion in 2027.
The selloff is not over because earnings season is not over. Futures remain fragile heading into further hyperscaler reports and the Federal Reserve's rate decision. One counterpoint is TSMC, whose third-quarter net profit jumped 69% to a record, beating forecasts and showing AI hardware demand is intact. The market's question is narrower: can 39% cloud growth at AWS, and similar momentum at peers, accelerate fast enough to cover a trillion-dollar capex wave. If not, the rout has further to run.