Ahead of the US midterm elections, which are scheduled to take place on November 3, the US technology stocks suffered a massive fall on Friday. The sharp decline was prompted in the wake of investors turning cautious over the massive spending on artificial intelligence (AI) and beginning to wonder when these investors will start delivering meaningful returns.
The pressure has intensified following disappointing quarterly updates from major technology companies, including Alphabet, Amazon, and Intel. The Nasdaq 100 has fallen more than 5.8% in October, putting over $2 trillion in market value at risk, as concerns over the AI trade weigh on investor sentiment.
Alphabet, Amazon and Intel shares slide
Alphabet witnessed one of its worst trading sessions after its latest results highlighted rising AI-related expenses, weaker advertising growth and a sharp cash outflow. Its shares plunged more than 12% on Thursday, marking the company’s worst single-day percentage decline since it went public as Google in 2004.
Amazon shares also came under pressure, falling around 7.2% in pre-market trading on Friday after reporting a significant cash outflow in the September quarter and signalling that capital expenditure would increase further next year.
Intel was among the biggest losers, with its shares plunging around 26% ahead of trading after the chipmaker warned that it expects to burn cash this year. The company cited weak PC demand and manufacturing challenges.
The sell-off also affected other semiconductor companies, with Nvidia, AMD and Broadcom among the stocks trading lower. Nasdaq futures tumbled nearly 800 points, or 2.7%, on Friday.
Why are investors worried about AI spending?
As mentioned, one of the biggest concerns is the amount of money tech companies are spending on AI infrastructure, including data centres and advanced computing systems.
Investors are increasingly questioning whether these investments will translate into higher profits and stronger free cash flow. Several companies have also turned to debt markets to finance their expansion, raising concerns about borrowing costs and the sustainability of such spending.
Why are tech stocks declining ahead of US midterm elections?
The upcoming US midterm elections on November 3 have added to the uncertainty surrounding technology stocks. Investors are assessing whether a possible shift in control of Congress could bring changes to the regulatory environment fo artificial intelligence and affect the pace of data centre expansion.
Polls suggest that Democrats have a strong chance of regaining control of the House of Representatives, while the Senate race could also become competitive. A stronger Democratic presence in Congress could mean greater scrutiny of AI companies, their infrastructure investments and the energy requirements of large data centres.
This has made investors cautious about the future of the AI boom, particularly at a time when major technology companies are committing hundreds of billions of dollars to infrastructure without yet demonstrating returns at the same scale.
However, the election uncertainty is not the only reason behind the decline. Disappointing earnings updates, rising capital expenditure and concerns over cash flows have been the immediate triggers for the sell-off. The midterm elections have added another layer of risk, leaving investors to assess both the financial outlook of technology companies and the possible policy changes in Washington.