Tech Stocks Sell Off as Intel, Amazon Earnings Spook Investors

Key Takeaways

• Intel shares plunged after providing weaker-than-expected revenue guidance for the fourth quarter.
• Hyperscaler Amazon missed third-quarter estimates and reported a jump in negative free cash flow.
• This comes a day after Alphabet stock saw its worst session on record after disappointing results.

Disappointing earnings from Amazon AMZN and Intel INTC sparked the latest selloff in global tech stocks on Friday, weighing on companies across the sector and throughout its supply chain.

Intel shares plunged 30% at Friday’s market open after the chipmaker provided weaker-than-expected fourth quarter revenue guidance in results published Thursday. “Intel gave investors an ugly outlook because weak demand for CPUs and higher memory chip prices are suppressing unit demand,” Morningstar analyst Brian Colello says, reducing his fair value estimate for Intel to $85 from $105.

The firm said it expected revenue for the final three months of the year to be between $15 billion and $16 billion, falling short of an estimate of $17.05 billion, according to Deutsche Bank.

Amazon shares fell 3% after the tech giant missed expectations in third quarter results on Thursday. Negative free cash flow jumped to $42.4 billion on a trailing 12-month basis, up 386% year over year. At the same time, Amazon said it continued to expect capital expenditure to come in at about $220 billion for the year.

This comes after Google parent Alphabet GOOG saw its worst day ever on the stock market on Thursday, with shares plunging nearly 13% in the session, following underwhelming results on Wednesday. The stock was down around 1% shortly after the market open on Friday.

In addition, Reddit RDDT shares tumbled more than 30% in early trading Friday, after the social media company’s fourth quarter revenue guidance fell short of expectations. Reddit had warned that Google’s artificial intelligence search features had hurt its referral traffic.

Tech Stock Selloff Ripples Through Supply Chain

The earnings have added to investor concerns about whether tech companies’ massive spending on AI will pay off.

Ipek Ozkardeskaya, senior analyst at Swissquote, highlights that together, Amazon, Alphabet, Microsoft MSFT and Meta META spent more than USD 200 billion on capital investment in the third quarter alone. She says that for the first nine months of the year, this brings the bill to just over USD 500 billion, with full-year spending expected to hit around USD 735 billion: “The AI race is getting very, very expensive.”

Chipmaking giants Nvidia NVDA and Broadcom AVGO were down 3% and 4.5% respectively on Friday. More broadly, the tech-heavy Nasdaq index slid 2.3%, while the S&P 500 was 1.2% in the red, at the time of writing.

Dan Coatsworth, head of markets at AJ Bell, says that this means nearly $3 trillion has been wiped off the index since its peak on Oct. 6.

“Investors are increasingly unhappy at the huge sums of money being spent on AI infrastructure without a clear road map for when, or whether, those investments will deliver a sufficient return,” he says. “That means investors are increasingly questioning if money is being spent wisely.”

Coatsworth says major tech companies are “going all-in with their bets that AI will be the biggest thing in decades to transform business and consumer life,” but adds that if they’re wrong the “fallout could be huge.”

The latest selloff hit tech stocks globally, with South Korea’s SK Hynix 000660 down 8.5% on Friday, while Samsung Electronics 005930 fell 4.3%. For Samsung, it was a second consecutive session of declines after results announced Thursday contained warnings of a memory shortage until 2029, which contrasted with SK Hynix’s more confident outlook.

Over in Europe, Dutch chipmaking equipment company ASML ASML slipped 5.4% and Paris-listed STMicroelectronics STMPA was 3% in the red. A day earlier, STMicro had posted third quarter revenue and fourth quarter guidance that were better than expected.