Shares of Amazon slumped 7.4% in US premarket trading on Friday, October 30, while Intel plunged 25%, as investors fretted over the tech giants’ massive cash burn on artificial intelligence (AI), accelerating a rotation out of the technology sector.
The e-commerce and cloud giant reported higher-than-expected capital expenditure and slower growth in its online retail business. The company said it spent more than $77 billion on property and equipment in the third quarter, well above analyst expectations, as it continues to expand data centre capacity and meet demand for AI services.
Amazon reported a cash burn of $7.6 billion in the previous quarter, compared with cash generation of $14.8 billion in the third quarter last year. Like its competitors, Amazon has further made a massive spending commitment to developing AI software and infrastructure, forecasting capital expenditure of $220 billion this year.
Meanwhile, Intel tanked 25% after the chipmaker warned that it would burn cash this year due to a weak PC market, manufacturing bottlenecks, and heavy spending to expand production.
The decline puts the US chipmaker, which forecast fourth-quarter revenue and profit below Wall Street expectations, on track to lose more than $123 billion in market value and open at its lowest level in about six months if the losses persist through the regular trading session.
PC chips accounted for roughly half of Intel’s third-quarter revenue. The company expects sales from the segment to decline by more than 20% sequentially this quarter, following a 5% drop in the September quarter.
Amazon and Intel are together poised to lose around $300 billion in market value if the losses hold, according to Reuters.
Meanwhile, the broader semiconductor sector also came under pressure, with Nvidia down 2.5%, AMD sliding 7%, and Broadcom losing roughly 4%.
AI spending spree puts Big Tech cash flows and borrowing under scrutiny
The AI spending spree is eating into Big Tech’s once-enviable cash flows. Alphabet and Meta both burned cash in the September quarter, while Microsoft, the only exception, joined the borrowing spree with a $25 billion debt sale on Thursday.
The technology giants have deep pockets to sustain their spending, but investors have grown increasingly wary of smaller AI cloud firms borrowing heavily to fulfil enormous order backlogs.
Several companies have tapped the bond market to finance these investments, amplifying concerns that debt-funded spending could become harder to justify as borrowing costs rise.
Concerns over borrowing conditions come at a time when the US Federal Reserve is expected to raise interest rates by more than 50 basis points by mid-2027, Reuters reported, citing LSEG data.
In the previous trading session, Alphabet, the parent company of Google, also crashed 13%, marking its biggest single day drop since its listing in 2004.
Aggressive efforts to expand cloud capacity and fund AI development led Alphabet to burn $5.9 billion last quarter, marking the first time its free cash flow had turned negative in 22 years as a public company.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
