Nasdaq 100 sheds over $2 trillion in October on AI spending fears

Summary

• The Nasdaq 100 is on track to lose more than $2 trillion in market value this October.
• The index fell over 5.8% this month as Meta, Alphabet and Amazon raised capital spending forecasts.
• Investors are now questioning when the AI infrastructure race starts producing actual profits.

The latest

More than $2 trillion in market value is set to be wiped from the Nasdaq 100 this October, with the tech-heavy index down more than 5.8% since the start of the month, Reuters reported. The slide followed earnings and capital spending guidance from the largest US technology firms that reopened the debate over the economics of the AI infrastructure build-out, as financing costs climb.

Details

• The trigger: Reuters reported that quarterly results and capital expenditure outlooks from the biggest technology companies revived questions about the economic case for building AI infrastructure. Meta, Alphabet and Amazon all raised their spending forecasts to expand data centers, while the timeline for returns on that spending remains unclear to investors.
• Alphabet's slide: Alphabet shares came under heavy pressure after posting their largest single-day percentage decline on record during Thursday's session, according to Reuters. The drop followed results that raised concerns about the performance of the search advertising business and about rising cash spending at the company.
• Meta's raise: Meta's plan to raise $97.5 billion stirred concern over shareholder dilution and over the prospect that large technology firms will lean more heavily on capital markets to fund AI investment. The company did not set out how the proceeds would be allocated across its infrastructure programs.
• The other side: Results from Microsoft and SpaceX showed early signs that some AI investment is feeding through to performance, Reuters reported. Amazon's cloud computing services continued to accelerate their growth rate, and Meta posted revenue growth that came in above analyst expectations for the quarter.
• The asset manager: John Bilton, head of global multi-asset strategy research at JP Morgan Asset Management, said investors may have overestimated the strength of expected growth, while adding that demand for data remains strong and is still rising.
• Credit markets: Investor unease has moved beyond equities into credit markets as the largest technology companies borrow more to fund their AI expansion. Microsoft plans to raise roughly $25 billion through a US bond sale, its first US investment-grade corporate bond issue in more than 9 years, according to an earlier Reuters report.
• The debt pile: Meta, Amazon and Alphabet have issued hundreds of billions of dollars in bonds over the past four years, raising questions about how far these companies now depend on debt markets to finance their investment programs rather than on internal cash generation.
• The 2030 bill: JP Morgan analysts project global spending on AI infrastructure will reach $5.5 trillion by 2030, including an estimated $900 billion during 2026 alone. The bank's analysts also estimate this year's capital spending at Amazon, Alphabet, Meta, Oracle and Microsoft may match everything those five firms have spent since ChatGPT launched in November 2022.

Between the lines

The risk is concentrated where it is least expected. Rising borrowing costs arriving at the same time as delayed AI returns would squeeze companies investors have long treated as insulated from economic swings. Revenues at the biggest technology firms remain strong, but the market is now pricing the gap between spending and payback rather than the spending itself.

What's next

Watch Microsoft's planned $25 billion bond sale and the pricing it secures, the execution of Meta's $97.5 billion raise, and whether capital spending guidance is revised when the next round of quarterly results lands.

Source: Reuters