Tech Giants' Earnings Stumble One After Another: The Week Tech Stocks "Faced Reality"

Written by Gao Zhimou

Earnings from Google, Amazon and Intel disappointed the market one after another, and the cracks in this week's AI trade widened markedly. On Friday (Oct. 30), Intel's shares plunged 29%, the largest single-day drop in its history; the Nasdaq Composite fell 2.9%, its worst day since June, and October is set to be the index's worst month in more than a year.

For months before this, the risks of the AI trade were mainly exposed on heavily indebted small companies, while the giants held Wall Street steady with rich profits. This week, that changed: Google's search advertising growth slowed, Amazon's free cash flow swung sharply negative, and Intel projected a prolonged slump in PC sales. According to FactSet, the "Magnificent Seven" are expected to post slower third-quarter earnings growth than the rest of the S&P 500.

The question the market is asking has shifted from how big AI demand is to who will pay for AI. Rich Privorotsky, head of Goldman Sachs' Delta One desk, wrote:

"The cost of capital has been objectively repriced, and there is no obvious fix."

Earnings Stumble One After Another

Early in the week, Anthropic's IPO filing showing soaring revenue briefly lifted sentiment, but the earnings reports from the giants that followed poured cold water on the market.

Alphabet's search advertising growth slowed, partly because of the impact of "AI Mode" queries, and the company also said capital spending will increase "significantly" in 2027. Its shares fell 13% on Thursday, the worst single-day performance in its history, wiping out about $489 billion in market value, with major shareholders such as Berkshire Hathaway suffering heavy losses.

Amazon reported revenue after Thursday's close that missed expectations; free cash flow for the quarter was -$33.5 billion, more than four times worse than expected; capital spending surged to $77.3 billion, while the company added $48.1 billion in new long-term debt over the same period. Its shares fell 7% on Friday.

Intel forecast fourth-quarter revenue of $15 billion to $16 billion, below the market's expectation of $17.29 billion, and said it will not achieve positive cash flow this year. The company also expects a long-term slowdown in PC sales, because the AI boom has driven up memory chip prices. Intel closed down 29% on Friday, having fallen as much as 29.7% intraday, the largest intraday decline since Bloomberg data began in 1982. The paper holdings of its two major shareholders, the U.S. government and Nvidia, shrank by more than $17 billion combined.

Microsoft's Azure grew 48%, but commercial bookings fell 12%. About 12 hours after releasing results, the only AAA-rated tech company launched a $25 billion bond sale, its first since 2017.

Friday's selloff spread across the entire tech sector: all of the Magnificent Seven closed lower, memory chip, semiconductor and neocloud stocks sank, Reddit fell 26%, and Bitcoin dropped more than 5%. Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners, said:

"The cracks may not be connected, but when there are enough cracks, does the road eventually collapse?"

From "Paying for Demand" to "Who Pays"

The giants earned enough that the market had tolerated their heavy spending. Paisley Nardini, head of investment strategy at Tema ETFs, said that previously "spending signaled confidence in this buildout and was rewarded," while "suddenly, spending is seen as a headwind."

The turning point began with Meta. On Oct. 21, Meta announced fourth-quarter capital spending of $49 billion to $59 billion, free cash flow that was negative after dividends, and warned in a filing that it may need to "raise hundreds of billions of dollars" as early as autumn 2026. On Oct. 26, Meta launched an equity offering of up to $97.5 billion, with Nvidia, AMD and Broadcom expressing interest in subscribing for up to $5 billion. The same day, Anthropic's S-1 filing showed compute bills of roughly $780 billion to $810 billion. According to Bloomberg, the four tech giants' capital spending this year will approach $750 billion, and "investors are no longer buying into returns wholesale."

The credit market signaled earlier. From early September to mid-October, hyperscalers and AI-related companies did not issue a single investment-grade bond, and CoreWeave's unsecured bond spread widened past 1,000 basis points. This week, hyperscaler CDS hit new highs again; with Texas freezing new projects, banks shelved the junk bond sale for Anthropic's $15 billion Texas data center. Goldman Sachs credit strategists noted that AI default risk has tripled since January.

Ted Mortonson, a technology strategist at Baird, said the massive fundraising is good for Wall Street banks but has left fund managers "scared out of their wits," and "my advice is to stay away for now." Keith Lerner, chief investment officer at Truist Advisory Services, said: "The bear case is that peak earnings are closer than we think."

Violent Rotation Beneath the Index

As of Thursday, the S&P 500 was still up about 0.9% this month, just a few percentage points from its record high, but internal divergence was violent. The Nasdaq 100 fell about 3.3% this month, with member companies shedding more than $1.2 trillion in market value. The Magnificent Seven are down more than 6% in October, neoclouds are down 37%, while Goldman Sachs' basket of stocks "most vulnerable to AI disruption" is up more than 15%.

On Oct. 29, Google's plunge dragged the S&P 500 down 0.3%, even though 406 of its constituents rose that day. According to Bloomberg data since 1996, over the previous 987 trading days with at least 400 advancers, the index rose without exception. UBS traders said money is flowing from crowded AI and growth stocks into value stocks, small caps, consumer and rate-sensitive cyclicals, rather than leaving the stock market.

Institutional positioning contracted in tandem. Goldman Sachs prime brokerage data show hedge funds sold tech stocks at the fastest two-week pace in more than a decade, and net leverage on U.S. equities fell to the lowest level in five years. Goldman's high-beta momentum basket is down 43% from its June peak, erasing its gains for the year. In Asia, Samsung Electronics and SK Hynix both fell more than 16% this month.

Rates, Iran and the Midterms

After the Fed raised rates in September, the market expected further tightening; this month the Fed paused, but with two hawkish dissents. Fed Chair Kevin Warsh said this week: "Interest rates affect almost everything, directly or indirectly... Market participants are sorting out which investments they want to make."

Geopolitical risks are also rising. Trump hinted that the U.S. may launch a new military action against Iran after next week's midterm elections. Brent front-month futures closed Friday at $117.64 a barrel, near their high for the year, having touched $118 intraday. Treasuries, by contrast, strengthened, with the 10-year yield falling below 4.9% to a six-week low, as the bond market sees the oil price surge mainly as a threat to economic growth. The midterms will also determine how much local opposition to data centers across the U.S. translates into development restrictions.

Optimists remain. Michael Monaghan, portfolio manager of the Founders 100 ETF, believes that if the Middle East situation stabilizes, the market will "rally substantially"; the upcoming Anthropic IPO "is the block that holds up the entire AI trade." "We're bullish. The AI trade isn't over."

But Privorotsky warned that the risk is that financing constraints eventually force the giants to rein in capital spending, "it's just that we can't see that yet in spending intentions."

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