Nasdaq Hits Three-Month Low as AI Spending Fears Trigger $1 Trillion Wipeout

Key points

• Intel shares dropped nearly 29% to 30%, its largest single-day decline in history, after warning of cash burn due to weak PC demand and manufacturing hurdles.
• Amazon fell 2% after reporting a sharp cash outflow in the third quarter and signaling increased capital expenditure for 2026, maintaining a forecast of $220 billion.
• The Nasdaq Composite shed 650.77 points, or 2.48%, to close at 25,533.95, hitting its lowest level in nearly three months.
• The S&P 500 information technology index fell 3.9%, its steepest one-day drop since June 23, while the broader S&P 500 lost 1.56%.
• Global chip stocks suffered a selloff, with Nvidia down 3.7% and AMD sliding about 10%, while server makers Dell and HP lost over 8% each.
• Investors rotated into defensive sectors, with consumer staples and healthcare indexes rising 1.6% and 0.7%, respectively, as healthcare hit a record high.

Background

This selloff follows a week of rough tech earnings, including Alphabet's record 13% drop on Thursday after reporting ballooning negative free cash flow. In early October, the South Korean KOSPI index hit a six-month low and triggered a circuit breaker due to chip selloffs and doubts over the sustainability of the global AI investment boom. Additionally, expectations that the Federal Reserve will hike interest rates by over 50 basis points by mid-2027 have raised concerns about the cost of debt-funded AI spending.

How outlets are covering it

Reuters and Yahoo Finance emphasize the severe market impact, noting the Nasdaq's three-month low and the $1 trillion wipeout, while highlighting the rotation into defensive sectors. The New York Times focuses on the broader market holding on despite the tech tumble, with the S&P 500 set for a small monthly loss. CNBC highlights Amazon's negative free cash flow for the second consecutive quarter and Intel's earnings miss. The Honolulu Star-Advertiser quotes Art Hogan of B. Riley Wealth, who views the decline as a rotation out of a popular tech trade rather than a broader reset, noting that Alphabet, Amazon, and Intel are highly sensitive to disappointment. Joe Saluzzi of Themis Trading described the Intel decline as a 'reset' rather than the end of the story, while Angelo Kourkafas of Edward Jones attributed the rotation to above-trend economic growth and improving earnings in lagging sectors.

Why it matters

The selloff signals growing investor skepticism about the return on massive AI infrastructure spending, particularly as companies rely on debt to fund buildouts. Higher interest rate expectations could make such spending harder to justify, potentially leading to a broader reassessment of tech valuations. The rotation into defensive sectors suggests a shift in market sentiment, with investors seeking safety amid concerns over AI profitability and cash burn.

What to watch

Investors will monitor whether the tech selloff continues or stabilizes, particularly as companies report earnings and provide guidance on AI spending. The Federal Reserve's interest rate decisions and economic data will also influence market sentiment, as higher borrowing costs could further pressure debt-funded AI investments. The performance of defensive sectors and the trajectory of chip stocks will be key indicators of market confidence in the AI trade.