US tech stocks see sharp falls over AI cost fears

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Tech stocks tumbled for the second day in a row as concerns rise over the hundreds of billions of dollars firms are investing in artificial intelligence (AI).

Shares in Intel plummeted by 28% on Friday, while Google owner Alphabet saw its stock price continue to fall another 1.4% after a 12% plunge on Thursday.

Other tech stocks, including Reddit and Amazon also fell, while the Nasdaq index of the largest tech firms listed in the US, ended October with its worst monthly slide since March 2025.

While tech firms are spending big on AI, their earnings are not always meeting analysts’ expectations, spooking investors and creating fears of an AI bubble.

Major tech companies have ramped up artificial intelligence spending, with Meta, Alphabet, Oracle, Amazon, and Microsoft committing to spending $800bn between them in 2026.

Alphabet’s stock market value fell sharply on Thursday, taking more than $500bn (£374bn) off its market value after it revealed the AI summaries it now provides as the top answer to search queries were affecting its core search advertising revenue.

At the same time, Alphabet expects to spend up to $205bn this year on investments, almost entirely related to AI.

The bigger losses on Friday were elsewhere however, with Intel shedding more than $130bn in value.

The chip maker said it planned to increase spending on AI despite weaker demand for computers, a major source of demand for its micro-processors.

On Thursday, Intel’s finance chief David Zinsner said the firm did not expect to bring in more cash than it spent this year and forecast lower-than-expected revenue for its fourth quarter.

“Looking ahead, we see the PC slowdown continuing at least through the first half of next year,” he said in the chip maker’s third quarter earnings report.

In the earnings call, he said the firm had significantly ramped up investment in equipment in the third quarter and expected that to be “even more significant” in the following three months.

Amazon and Reddit down

Amazon on Thursday revealed it had also spent more cash than it was making, and that spending had increased six-fold over the span of three months.

The company has committed to spending $220bn this year, putting the money towards investments such as AI data centres, network equipment, and servers.

Amazon shares recovered some overnight losses, but were still down by 1.4% at the end of Friday trading.

Reddit stock plunged by 29%, after the social media platform revealed weaker-than-expected daily user figures and warned that Google’s growing AI-driven search was hurting referral traffic.

Stock in online game platform Roblox also fell, down by 18%, as its daily active user numbers dropped.

Several major tech firms have reported earnings this week, including Microsoft, and analysts said there were questions about the payout from the huge investments in AI.

Chris Low, from investment management firm FHN Financial, said the bulk of what was happening in the stock market was in reaction to some of the biggest tech players such as Amazon and Google.

He told Reuters the companies were “showing some pretty significant growing pains as they aggressively pursue the AI build-out”.

“The thinking is that these signs suggest that the entire sector is going to slow down.”

‘Investors have turned ruthless’

Many analysts have been debating the possibility of an AI bubble in the stock market.

The worry is that some tech firms will not be able to justify their sky-high valuations because the cost of building AI data centres and developing the software will end up being greater than the money they can make from it.

Kathleen Brookes, research director at trading firm XTB, said there have been many ups and downs in AI trade in recent months.

“Investors have turned ruthless, punishing any signs of disappointment in [third quarter] earnings,” she said.

“The AI trade has had a good run in recent years, but now investors want payback, and companies like Alphabet and Intel are in the crosshairs.”

However, stock market values for many of these companies remain well above where they were a year ago.

While the Nasdaq closed 2.8% lower, it is up 7.8% over the last year. Similarly Amazon is up nearly 8% over the past 12 months, while Alphabet is down 1.3%.

Brookes noted that November is typically a strong month for stocks.

“If we see AI stocks continue to struggle in the coming days, it could suggest the AI trade is past its peak, and investors will be looking for a new theme to drive markets,” she said.

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