Why did US stock market crash? $2 trillion AI selloff, explained simply
Wall Street closed October with a brutal selloff, erasing roughly $2 trillion from the Nasdaq-100’s market value as investors questioned whether the AI boom can justify its enormous costs.
The wipeout is slightly larger than SpaceX’s entire market value, with the index down more than 5.8% for the month.
The immediate trigger was disappointing corporate earnings.
Alphabet suffered its biggest one-day percentage drop on record, losing more than $500 billion in market value, after reporting $9.1 billion in negative free cash flow driven by AI infrastructure spending and missing expectations in its core search advertising business.
Amazon disclosed negative free cash flow of $42.4 billion over the past 12 months and expects capital expenditure of approximately $220 billion this year.
Intel collapsed nearly 29% in a single day after an explosion at its Israeli manufacturing facility disrupted production, and an estimated $600 million revenue hit over two quarters, compounded by weakening PC demand.
Reddit fell more than 36% for the week after warning that Google’s AI-generated search answers were reducing traffic to its platform. Enterprise software stocks also suffered, with ServiceNow down about 34% and Fortinet losing 24%.
This selloff is being fueled by concerns regarding the level of investment being made in the AI sector.
According to JPMorgan, capital expenditures on artificial intelligence across the globe will hit $900 billion by 2026, while Morgan Stanley predicts it will top a trillion dollars next year.
The rising cost of credit is making debt-financed investment harder to justify; for instance, Microsoft is planning to issue a $25 billion bond, its first investment-grade offering in the US in more than nine years.
However, not all was bad news. Microsoft reported high demand for its cloud products, Google saw its cloud revenues more than double, and Meta beat market expectations when it comes to revenue growth.
AMD and Nvidia’s earnings are awaited now.