Il Nuovo Postiglione - Wall Street tech rout deepens on doubts over AI spending

Microsoft, Alphabet and Amazon all reported quarterly results this week, and each signaled it would keep pouring money into data centers and chips even as investors grow impatient for returns.

Along with Meta that reported last week, together the four companies are on track to spend more than $700 billion on capital investment this year -- roughly the size of Argentina's or Belgium's entire economy -- much of it on AI infrastructure, according to analyst estimates.

The companies are "all showing some pretty significant growing pains as they... aggressively pursue the AI build-out," Christopher Low of FHN Financial told AFP.

Low said that while the sell-off reflected company-specific stories, the market was reading them as signs that the entire sector would slow.

Chipmaker Intel was the hardest hit, with its shares sinking as much as 30 percent after it gave a weaker-than-expected revenue forecast for the fourth quarter, citing weakness in the PC market and manufacturing bottlenecks.

Intel's PC business had been hurt by higher memory prices and supply problems caused by the AI build-out itself, as the race to build AI infrastructure crowds out the supply of key components used in consumer electronics.

The resulting shortage has pushed up prices for laptops, gaming consoles and smartphones -- a squeeze that risks weighing on consumer demand for the devices that use Intel's chips.

Amazon shares also fell after the e-commerce and cloud giant missed expectations for the third quarter.

According to Low, demand for Amazon’s cloud services remained strong, leading the company to nearly double its AI-related spending this year, while its retail revenue was weak.

"So that means they’re going to need more debt to finance the build-out, and investors obviously didn't like that," he said.

Alphabet shares plunged 12 percent on Thursday, their worst day since the Google parent went public in 2004.

Low said search advertising, Alphabet’s main source of revenue, had weakened last quarter, with investors worried this was partly because AI-assisted search was better at avoiding ads.

At the same time, he said, the returns on Alphabet’s AI investments were "not very good."

Steve Sosnick of Interactive Brokers said shares in the tech giants had been priced for perfection.

“When you price for perfection, anything less than perfect is going to come back and is going to bite you, and this is kind of what’s happening here,” he said.

Ives described the week as "a tale of two cities for tech investors."

Cloud results from Microsoft, Amazon and Alphabet were strong, he said, and their spending levels were broadly in line with expectations.

But he said the earnings had exposed uncertainty over which companies and sectors would be disrupted by AI.

For Alphabet, "this is the first quarter that the negative thesis around AI crushing search has legs," Ives wrote, referring to Google’s search advertising business, one of the most profitable businesses in history.

He said software firms were also seeing AI projects convert into revenue more slowly, but added: "This is not the time to panic and sell all the tech winners and head into the bunker."

Ives said he expected 2027 to be the year when revenue from AI begins to justify the heavy spending.

A.Ferrara--INP