Amazon burns cash, Intel flags weak PC demand as AI boom’s costs ripple across markets

Wall Street's concerns over the cost of the AI boom intensified following Thursday's market close, as reports from Amazon and Intel demonstrated that the technology infrastructure race is straining both the industry and consumers. Amazon disclosed that its data-center spending is ballooning, turning once debt-light tech behemoths into significant borrowers.

At the same time, rising prices are dampening global demand for devices such as smartphones and PCs. Amazon forecasted that holiday-quarter sales would fall below market expectations, which could signal increased pressure on consumers amid rising inflation. Intel's PC business also faced challenges due to a memory chip shortage, which has driven up costs.

The AI spending spree is also eroding the cash flows of major tech companies like Alphabet and Meta, who both burned cash in the September quarter. Microsoft was the sole exception, taking a $25 billion debt sale on Thursday. Although the tech giants possess ample resources to fund their spending, investors have become increasingly wary of smaller AI cloud firms borrowing heavily to meet substantial order backlogs.

Amazon's 7% decline in after-hours trading was joined by losses of 5.8% to 6.7% in AI cloud stocks CoreWeave, Nebius, and Iren. Alphabet's stock fell nearly 13% after-hours, with an additional 1.5% decrease following regular trading. The semiconductor index also dropped post-close after Intel cited near-term headwinds in the PC industry.

Intel's share price fell 18%, while the company reported that a factory explosion in Israel would lead to a two-week shutdown and approximately $600 million in lost revenue over the next two quarters. Overall, the semiconductor weakness in the after-hours market is primarily attributable to Intel's guidance and the negative sentiment it has sparked.

Some analysts believe that Intel's problems in the PC sector, which is less scrutinized on Wall Street compared to the AI buildout, do not necessarily indicate significant problems for other chipmakers that focus more on AI. However, investors in the less-active post-market trade opted to act hastily. The Direxion Daily Semiconductor Bull ETF, which aims to deliver three times the daily performance of the SOX, experienced a 9% decline.

The SOX has been a standout performer since 2021, rising over 60%, but its momentum has been tested due to increasing financing costs. This has led to some anticipated IPOs being postponed and put pressure on highly leveraged AI infrastructure firms. Intel was once perceived as a potential challenger to Nvidia and AMD, but it has struggled to maintain its position, with investors pouring money into the company and some funds being easily gained and lost.