Nasdaq Suffers Major Losses: $2 Trillion Decline in October
More than $2 trillion in market value is expected to be wiped from the Nasdaq 100 this month, driven by heightened investor scrutiny over the returns from massive investments in artificial intelligence (AI). The index has dropped over 5.8% in October as major tech companies, including Meta Platforms, Alphabet, and Amazon.com, have increased their spending forecasts to expand AI infrastructure. This surge in spending has raised concerns among investors, particularly in light of rising borrowing costs that could complicate debt-funded investments.
Alphabet experienced its largest one-day percentage drop on record following disappointing results in search advertising and a significant increase in cash burn. Meta’s announcement of a record $97.5 billion fundraising plan has further fueled worries about shareholder dilution and the potential need for other tech giants to rely more heavily on capital markets due to escalating AI expenditures.
Intel’s stock led the decline on Friday, nearing its worst day since 1974 with a 30% drop. In contrast, Microsoft and SpaceX reported results indicating that their AI investments are beginning to yield returns. John Bilton, global head of strategic research at Multi-Asset Solutions, noted that while growth expectations may have been overestimated, the overall trend remains positive. Microsoft is reportedly planning to raise about $25 billion through its first U.S. investment-grade bond sale in over nine years.
The increasing reliance on debt funding by AI companies is emerging as a new risk for investors. Concerns are spreading beyond equities to credit markets, where rising financing costs and slower returns on AI spending could impact companies previously considered insulated from macroeconomic pressures. Despite these challenges, revenue across the “Magnificent Seven” tech companies has remained strong since the launch of ChatGPT in 2022, reflecting persistent demand. Amazon’s cloud computing division, Amazon Web Services, continues to grow, while Meta has reported better-than-expected revenue growth.
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