Wall Street's artificial intelligence gold rush suffered a brutal reality check at the end of October, as technology stocks tumbled across two consecutive sessions, wiping more than $600 billion off the combined market value of Google parent Alphabet and chipmaker Intel alone. What began with concerns about Google's earnings spread to chipmakers, software developers and social media companies, raising an increasingly urgent question for investors: When will the enormous sums being poured into AI begin delivering the returns to justify them?
The technology-heavy Nasdaq-100 plunged 3.47% on Friday, closing at 28,384.85 points, while the broader Nasdaq Composite fell 2.86% to 25,437.00. Across Thursday and Friday, the two indexes lost approximately 4.79% and 4.19%, respectively.
AI fears hammer Wall Street
(Photo: Reuters)
The broader market was also hit. The S&P 500 dropped 1.82% to 7,580.07 points, while the Dow Jones Industrial Average fell 1.09% to 51,770.31. The Nasdaq Composite recorded its worst daily performance since June, as investors reassessed the valuations of companies that had benefited most from enthusiasm surrounding artificial intelligence.
Chipmakers were among the biggest casualties. Nvidia fell 4.22% on Friday, AMD plunged 10.88%, Qualcomm lost 11.12%, Broadcom shed 5.48% and Sandisk tumbled 13.47%. The Philadelphia Semiconductor Index sank approximately 7.2%, reflecting the scale of the retreat from one of the market's strongest investment themes.
Google's $475 billion disaster
The selloff accelerated Thursday after Alphabet reported quarterly results that exposed a widening tension between impressive AI-driven growth and the staggering costs required to sustain it. The Google parent lost approximately $475 billion in market value in a single trading session, according to Yahoo Finance, as its Class A shares plunged 12.64%. The stock declined a further 1.4% on Friday.
On the surface, Alphabet's results were hardly disastrous. Third-quarter revenue rose 25% to $127.6 billion, while Google Cloud revenue more than doubled to $30.7 billion, an increase of 103% from a year earlier.
But Google's core search business, which generates much of the cash funding its AI ambitions, fell short of analysts' expectations. Search revenue rose 12% to $63.35 billion, below forecasts of approximately $65 billion. The miss intensified concerns that the rapid development of AI-powered answers could eventually undermine Google's traditional search advertising business.
At the same time, Alphabet's capital spending reached $51.4 billion during the quarter, while free cash flow turned negative at approximately $9.1 billion. The company also recorded an $8.7 billion loss on equity investments, further weighing on its reported earnings.
The contradiction was difficult to ignore: Even as Google's cloud business was expanding at an extraordinary pace, investors were growing increasingly uncomfortable with the money being spent to fuel that expansion.
Intel's historic collapse
If Google's earnings triggered the reassessment, Intel turned it into a rout. Shares in the U.S. semiconductor giant collapsed 28.58% on Friday to $65.76, their worst single-day decline since 1974, wiping nearly $140 billion from the company's market capitalization.
The collapse came despite strong third-quarter results. Intel reported revenue of $16.5 billion, up 21% from a year earlier, while sales from its data center and AI division surged 78% to $7.3 billion. Adjusted earnings reached 52 cents per share, beating analysts' forecasts.
The problem was what came next. Intel projected fourth-quarter revenue of $15 billion to $16 billion, considerably below market expectations of approximately $17.1 billion. Its forecast of 25 cents in adjusted earnings per share also missed the roughly 43 cents analysts had anticipated.
The company warned of weakening demand for personal computers, rising memory-chip prices and continued pressure on cash flow. Chief Financial Officer David Zinsner said Intel did not expect to generate positive free cash flow this year.
The outlook was also affected by a deadly explosion at Intel's manufacturing facility in Kiryat Gat, Israel, which killed two workers and forced a prolonged shutdown. The company estimates that the disruption will reduce revenue by approximately $600 million over two quarters.
Amazon's enormous AI bill
Amazon added to the pressure after reporting third-quarter results Thursday evening. Its cloud division, Amazon Web Services, recorded revenue growth of 39% to $46 billion, its fastest expansion in nearly five years. The company also achieved its highest operating margin on record.
Yet investors focused on its spending. Amazon said it still expects approximately $220 billion in cash capital expenditures during 2026, while free cash flow over the preceding 12 months had deteriorated to a negative $42.4 billion, largely because of infrastructure investments.
Amazon shares fell 4.25% on Thursday and another 1.41% on Friday, despite recovering from much steeper losses earlier in the session.
The figures highlighted the central dilemma facing the technology sector. AI is generating enormous demand for computing power, cloud services and advanced chips, but the investments required to meet that demand are consuming cash at a pace that is testing investors' patience.
Reddit shows another danger of AI
Not every casualty of the selloff was being punished for excessive infrastructure spending. Reddit suffered its largest single-day percentage decline on record Friday, plunging 29.22% to $91.73 after warning that Google's AI-powered search features were reducing traffic to its platform.
Reddit reported that search referrals had declined by more than one million per week during October. If the trend persists, the company warned, total daily active users could decline by a low double-digit percentage in the fourth quarter from its current base of approximately 130 million.
The warning overshadowed otherwise strong earnings. Reddit's third-quarter revenue rose 53% to $895 million, beating expectations, while earnings also exceeded forecasts.
Its difficulties illustrated a different side of the AI revolution: While the technology giants are spending billions to build AI systems, companies that depend on visitors arriving through traditional search results may find their businesses threatened by those same systems.
The damage spreads beyond the tech giants
The two-day decline extended far beyond the companies dominating the AI infrastructure race. ServiceNow lost approximately 30% between Wednesday's close and Friday's finish after its outlook for contracted revenue growth disappointed investors. Cybersecurity firm Fortinet shed nearly 22% over the same period following concerns about slowing services growth.
Marvell Technology dropped approximately 22%, partly reflecting investor concerns over reports of a potential acquisition of optical networking company Lumentum. Roblox lost more than 19% after disappointing user figures and guidance, while cloud communications company Twilio also fell about 19% as investors focused on slowing projected growth.
The common thread was not that every company faced the same AI-related problem. Rather, investors appeared increasingly unwilling to overlook weak forecasts, slowing growth or heavy spending simply because a company was associated with the technology boom.
Has Wall Street lost faith in AI?
The most important shift may be in how investors assess the technology industry's massive investment plans. According to Capital Economics, Microsoft, Meta, Amazon and Alphabet have together accounted for more than one-third of capital spending by current S&P 500 companies over the past year.
As spending accelerates and some companies increasingly turn to outside financing, investors are demanding greater clarity on when those investments will become profitable. The concern is particularly acute because the companies leading the AI boom are also among the largest components of major U.S. stock indexes, meaning their declines have an outsized impact on the broader market.
Still, the selloff does not necessarily mean investors have abandoned artificial intelligence. Cloud revenue continues to expand rapidly, demand for advanced computing remains substantial and several of the companies whose shares plunged this week reported solid underlying growth.
What appears to have changed is Wall Street's willingness to pay almost any price for that potential. After two punishing sessions, the question is no longer simply how much AI can grow. It is whether the companies investing hundreds of billions of dollars in the technology can turn that growth into profits before investors lose patience.