US STOCKS-Nasdaq set for sharp drop as Amazon, Intel amplify AI spending worries

The tech-heavy Nasdaq was set ‌for steep ​losses at Friday's open after Amazon's aggressive AI spending plan and Intel's cash burn warning intensified investor concerns about escalating costs of AI infrastructure buildout and the timeline for returns. Shares of Amazon.com were down 6.5% in premarket trading after the company reported a ‌sharp cash outflow in the third quarter and signaled another increase in capital expenditure next year, on top of already elevated outlays.

Intel tanked more than 25% after the chipmaker warned it would burn cash this year due to a weak market for personal computers, manufacturing bottlenecks and heavy spending to expand production. Several companies have tapped the bond market to finance their hefty AI ‌investments, fueling concerns that higher borrowing costs could make such spending harder to justify.

Amazon and Intel were set to wipe out about $300 billion in combined market value, if ‌losses hold, putting the Nasdaq-100 on track to erase roughly $1 trillion. That would add to the index's close to $1.4 trillion loss in market value so far this month. "It's more a question of what is priced into a stock and how much investors are expecting. Alphabet, Amazon and Intel fall into the category where it doesn't take much to trigger a significant disappointment, and the punishment can be pretty harsh," said Art Hogan, chief market ⁠strategist at ​B. Riley Wealth.

"I don't think this is a ⁠broader reset... It's more of a rotation out of an extremely popular technology trade and into safer havens." Alphabet slipped 1%, after a record selloff in the previous session when the Google parent reported disappointing results in its ⁠search-advertising business and a sharp increase in cash outflows.

Meta also reported cash burn in the September quarter, while Microsoft stood out by delivering a big cash-flow beat, though it raised $25 billion through a ​debt sale. The broader semiconductor market, too, was under pressure, with Nvidia down 3.2% and AMD sliding 8.3%. Server makers Dell and HP lost 11.8% and 9.5%, respectively.

Energy giants Chevron ⁠and Exxon Mobil rose 1.6% and 2%, respectively, after reporting third-quarter profits above estimates. At 08:15 a.m. ET, Dow E-minis were down 42 points, or 0.08%, S&P 500 E-minis were down 86.5 points, or 1.12%, and Nasdaq 100 E-minis ⁠were ​down 768.75 points, or 2.6%.

The S&P 500 and the Nasdaq were on course for weekly gains, as the AI trade got a brief reprieve earlier this week when Anthropic unveiled its US IPO filing. The Nasdaq, however, was set to break a two-month winning streak in October, while the S&P 500 and Dow remained on track for gains.

Nine of the ⁠11 S&P 500 sectors were set for monthly gains, barring communication services, which was headed for its worst month since April 2022, and technology. The concerns around AI spending ⁠coincide with expectations that the Federal Reserve would ⁠raise interest rates by more than 50 basis points by mid-2027, according to LSEG data, even after the central bank held rates steady earlier this week, as expected.

Among others, social media platform Reddit slid 21.7% after CEO Steve Huffman warned that total daily active unique visitors ‌could fall by a ‌low double-digit percentage in the fourth quarter.