The last two weeks brought clarity to the stock market, but the outlook turned considerably darker for technology investors. While cloud-computing remains booming, heavy spending on artificial intelligence is eating into free cash flows, triggering a steep selloff. Alphabet Inc. shares plunged 13% on Thursday, their worst day ever, after Google's parent reported disappointing sales in its core search business and a second straight quarter with negative free cash flow.
Amazon.com Inc. followed with significantly worse negative free cash flow than anticipated due to higher capital spending and the slowest e-commerce growth in three years, sinking 5.6% over two sessions. Meta Platforms Inc. saw its stock drop 12% after revealing a sizable jump in capital spending plans, with S&P Global Ratings lowering its credit outlook to negative. Even Microsoft Corp., which reported nearly $19 billion in free cash flow and faster Azure growth, saw shares dragged down 1.6% on Friday.
The pessimism extended beyond megacaps, with Service Now Inc. tumbling 31% on a disappointing AI sales forecast and Fortinet Inc. cutting services forecasts. As US midterm elections approach, investors face heightened risk, questioning which companies can convert AI spending into sustainable returns.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing