Tech stocks tumble: What investors should watch as doubts grow over AI spending
Investors should look beyond companies’ spending announcements to how they actually make money from AI, analysts said.
US technology stocks experienced a significant drop as doubts grew over increased spending on artificial intelligence (AI). Nvidia, Microsoft, Broadcom, and AMD all saw declines, with AMD experiencing the steepest decline of 5.7%. Oracle and AI infrastructure firms CoreWeave and Nebius also saw sharp drops. The S&P 500 and Nasdaq both fell, marking the worst drop in the S&P 500 since July.
The drop came after US inflation data exceeded expectations, raising concerns about further Federal Reserve rate hikes, which would increase borrowing costs for AI investment, particularly capital-intensive cycles. Tech stocks are now being questioned on their ability to generate enough cash flow to service their debts, particularly for companies heavily involved in AI infrastructure.
Companies in the AI space are already facing increased competition from China, particularly in memory chips. Companies like Broadcom's CEO Hock Tan warned that AI investors are essentially gambling, and they need to show solid returns from AI investments. Investors are now looking for clear evidence that the AI spending translates into sustainable revenue, profits, and cash flow.
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
