Nasdaq futures tumble over 2% as Amazon, Intel stoke AI spending concerns
APWall Street futures declined sharply as Amazon and Intel shares plunged, intensifying concerns over AI infrastructure spending, cash burn, rising financing costs and technology sector profitability.
Amazon.com shares dropped 7.2% in premarket trading after the e-commerce giant reported a significant cash outflow in the third quarter and indicated that capital expenditure would rise further next year. The outlook added to investor concerns about the scale of investments required to expand AI infrastructure and the time needed to generate meaningful returns.
The shift in investor sentiment reflects growing scrutiny of the spending strategies adopted by major technology companies, Reuters reported. Investors are increasingly evaluating whether the potential returns from AI investments will justify the substantial capital commitments and associated financing costs.
The AI trade has faced renewed volatility in recent weeks as investors have questioned the billions of dollars that major technology companies are committing to data centres, computing capacity and other AI-related infrastructure, Reuters reported.
Several companies have also turned to debt markets to finance their investments, raising concerns that higher borrowing costs could make it more difficult to sustain spending if revenue growth fails to meet expectations.
Alphabet shares fell 0.9% in premarket trading, extending losses after a sharp selloff in the previous session. The Google parent reported disappointing performance in its search advertising business, along with a significant increase in cash outflows, adding to concerns about the profitability of its AI investments.
Meta Platforms also reported cash burn in the September quarter. Microsoft, meanwhile, raised $25 billion through a debt sale on Thursday, highlighting the growing role of borrowing in financing large-scale technology investments.
Intel Plunges 25%, Chip Stocks Slide
Intel shares plunged 25% in premarket trading after the chipmaker warned that it would burn cash this year, citing weakness in the personal computer market, manufacturing bottlenecks and heavy spending to expand production capacity.
The decline put the semiconductor industry under further pressure, with Nvidia shares falling 2.5%, Advanced Micro Devices sliding 7% and Broadcom losing around 4%.
Amazon and Intel were on track to lose about $300 billion in market value if their premarket losses persisted, underscoring the scale of investor concerns about technology spending and business profitability.
The selloff also reflects a broader reassessment of companies associated with the AI boom, as investors increasingly focus on cash generation, capital expenditure and the sustainability of future earnings growth.
Nasdaq Futures Lead Wall Street Lower
At 4:04 a.m. ET, Dow E-mini futures were down 25 points, or 0.05%, while S&P 500 E-mini futures declined 77.5 points, or 1%. Nasdaq 100 E-mini futures fell 640 points, or 2.16%, Reuters reported.
Despite Friday's weakness, the S&P 500 and the Nasdaq were on course to finish the week higher. Technology stocks had received a brief reprieve earlier in the week after AI research company Anthropic unveiled its U.S. initial public offering filing.
The monthly outlook, however, was less favourable for technology shares. The Nasdaq was headed for a monthly decline following two consecutive months of gains, while the S&P 500 and the Dow Jones Industrial Average remained on track to post monthly advances.
Nine of the 11 major S&P 500 sectors were positioned for monthly gains, with technology and communication services the exceptions. The communication services sector was heading towards its worst monthly performance since April 2022.
Interest Rate Outlook Adds to Investor Concerns
Concerns about the cost of financing AI infrastructure have intensified amid expectations that U.S. interest rates could rise again.
Data compiled by LSEG indicated that markets were pricing in Federal Reserve rate increases totalling more than 50 basis points by mid-2027.
The Fed kept its benchmark interest rate unchanged earlier this week, as expected. However, analysts interpreted the decision as a possible pause rather than the end of the current policy cycle, with expectations of another rate increase as early as December.
Higher interest rates could increase financing costs for companies borrowing to fund capital-intensive projects, potentially putting additional pressure on businesses that are yet to demonstrate adequate returns on their AI investments.
Reddit Shares Tumble After User Growth Warning
Among other stocks moving in premarket trading, Reddit shares plunged 21.1% after Chief Executive Officer Steve Huffman warned that the platform's total daily active unique visitors could decline by a low double-digit percentage in the fourth quarter.
The warning added to negative sentiment across technology stocks, as investors weighed growth concerns alongside rising costs and uncertain returns.
With major technology companies continuing to invest heavily in AI infrastructure, the market's focus is increasingly shifting from the promise of the technology to the financial implications of deploying it at scale. The latest declines in Amazon, Intel and semiconductor stocks highlight the growing pressure on companies to demonstrate that their investments can translate into sustainable cash flows and long-term profitability, Reuters reported.