US tech stocks see sharp falls over AI cost fears

Tech stocks experienced a second consecutive day of decline on Friday, as investors grew apprehensive over the billions being poured into artificial intelligence. Intel's share price dropped by 28%, while Alphabet's stock continued to fall 1.4% after a 12% dip on Thursday. Other tech firms, including Reddit and Amazon, also saw their stocks tumble. The Nasdaq, which tracks the largest tech companies listed in the US, ended October with its steepest monthly drop since March 2025.

The tech industry is heavily investing in AI, but earnings are often not meeting analysts' expectations, causing investors to panic and raising fears of an AI bubble. Meta, Alphabet, Oracle, Amazon, and Microsoft have collectively pledged to spend $800bn on AI in 2026. Alphabet's stock market value plummeted, losing over $500bn (£374bn) after it was revealed that AI-generated search summaries were negatively impacting the company's core search advertising revenue. The search giant expects to invest up to $205bn this year, almost entirely on AI-related projects.

On Friday, Intel's value dropped by more than $130bn, as the company announced plans to increase its AI spending despite declining demand for personal computers. Intel's finance chief, David Zinsner, stated that the firm did not anticipate generating more cash than it spent this year, and projected lower-than-expected revenue for the fourth quarter. Intel cited a slowdown in PC sales as a major factor in its weaker earnings.

Amazon, another major tech player, revealed that it had spent more money than it earned, with its spending increasing six-fold over the past three months. The company committed to spending $220bn this year on various initiatives, including AI data centers, network equipment, and servers. Amazon's shares recovered some losses overnight but still fell by 1.4% at the close of Friday trading.

Reddit's stock dropped 29% after the platform reported weaker-than-expected daily user figures and warned that Google's growing AI-driven search was hurting referral traffic. Roblox stock also fell 18%, as its daily active user numbers declined.

Several major tech firms have reported earnings this week, leading analysts to question the returns from their massive AI investments. Chris Low, from investment management firm FHN Financial, noted that the stock market's reaction to these announcements is primarily due to the aggressive AI expansion efforts of companies like Amazon and Google. Low expressed concerns about growing pains in the sector, suggesting that the AI boom could ultimately lead to a slowdown.

Experts have debated the possibility of an AI bubble in the stock market, with concerns that some tech firms will struggle to justify their high valuations as the costs of building AI data centers and developing software outweigh the potential revenue. Kathleen Brookes, research director at trading firm XTB, stated that investors have grown increasingly impatient, punishing any signs of disappointment in third-quarter earnings.

While AI stocks have seen significant gains over the past year, Brookes predicts that if AI stocks continue to struggle in the coming days, it may signal the end of the current AI investment craze, with investors seeking a new theme to drive market growth.