US tech stocks see sharp falls over AI cost fears

US tech stocks have experienced significant declines due to fears surrounding the escalating costs associated with artificial intelligence (AI) developments. Intel shares dropped as much as 30% in early trading on Friday after the company warned of a weaker computer market while simultaneously planning to increase its AI spending.

Amazon shares plummeted by up to 6% before recovering following earnings that fell short of investor expectations. The tech-focused Nasdaq exchange opened at its lowest level in over two months, slipping 2.5%, as other tech firms such as Reddit and Roblox also continued their downward trend. The losses followed a substantial drop in Google's parent company Alphabet's value by over $500 billion on Thursday, following the revelation that its AI summaries were negatively impacting its core search advertising revenue. Alphabet's stock continued to fall by 1% in early trading after Thursday's sharp decline.

However, the most pronounced losses occurred elsewhere on Friday, with Intel projected to lose more than $130 billion in value following an earnings update that alarmed investors. In his third-quarter earnings report, Intel's finance chief David Zinsner stated that the company did not anticipate generating more cash than it spent in 2021 and forecasted lower-than-expected revenue for the fourth quarter.

He further mentioned the continuation of a PC slowdown through the first half of next year. Regarding future prospects, Zinsner indicated that equipment investments within Intel would be significantly increased in the third quarter and further expanded in the following three months.

Meanwhile, Reddit's stock plummeted by 26% following the disclosure of weaker-than-expected daily user figures and a warning that Google's expanding AI-driven search was diminishing referral traffic. Similarly, Roblox's stock declined by nearly 20% due to a drop in daily active users. Several prominent tech companies released earnings this week, with analysts expressing concerns about the return on investment from substantial AI expenditures.

Chris Low, an investment management expert from FHN Financial, attributed the market's overall reaction to the substantial AI build-out initiatives undertaken by major players like Amazon and Google. He informed Reuters that these companies were encountering "significant growing pains" as they intensified their pursuit of AI development. The prevailing sentiment suggests that the entire sector is anticipated to decelerate.