The recent batch of results from several of the largest technology companies has set off alarms among investors and has rekindled doubts about the solidity of their revenues, just as they face a notable increase in capital spending linked to the deployment of artificial intelligence (AI). This scenario has taken its toll on Wall Street, with Alphabet, Intel and Amazon leading the declines on the New York stock exchange.
Alphabet, parent company of Google, presented its third-quarter accounts on Wednesday, in which a 25% drop in its profit is observed, free cash flow in the negative for the second consecutive period and advertising revenue, the group's main source of business, which fell below market expectations.
The company closed Thursday's session with its shares 13% cheaper, wiping out in a single day all the gains accumulated since the beginning of the year.
"Google's problem is that it faces the dilemma of an innovator and does not know whether to protect its core business or join the disruption. For this reason, Google has lost its edge with Gemini and is lagging behind its competitors in agentic AI," Ben Barringer, global head of technology research at Quilter Cheviot, told CNBC.
Thursday was Amazon's turn, which reported a 2.4% drop in its attributable net profit between July and September, despite achieving a 12% higher revenue. Its shares came to plunge 7% in pre-market trading, although they later reduced the punishment and began trading with a decline of close to 2%.
Intel has become for now the sector firm most heavily punished, with a 30% cut in the price of its shares on Wall Street, in what has been its worst stock market session in history. All this after reporting losses exceeding 11,000 million dollars (9,851 million euros) through September and publishing forecasts for the next quarter below what analysts had anticipated.
In parallel, other tech companies have been dragged down by the plunge of these giants and by the market's high volatility, which has caused declines in Nvidia (-3.84%), Micron (-5.65%), Dell (-11.07%), AMD (-10.31%), ASML (-6.26%) or SpaceX (-4%). Other heavyweights such as Microsoft (-1.5%), Apple (-0.89%) and Meta (-0.34%) have avoided such severe drops, but have also moved into negative territory.
The impact on the major New York indexes has been immediate: the main benchmarks of the New York Stock Exchange were posting declines dragged down by the technology sector. The Nasdaq 100, one of the most sensitive to the performance of these companies, was falling 3.6%, while the Nasdaq Composite was down 2.6%. At the same time, the S&P 500 was falling 1.61% and the Dow Jones 0.74%.
"Big tech needs its current businesses to keep generating the resources that its bet on the future requires," the XTB analysis team noted. "In Alphabet, search advertising growth disappointed and the heavy spending on infrastructure once again left free cash flow negative. In Amazon, sales forecasts for the Christmas campaign introduced caution, despite the growth of AWS," they add.
In a context marked by the emergence of artificial intelligence, big tech companies are being forced to sharply increase their capital spending and their strategic investments in AI in order not to fall behind, something that is fueling market concern about their medium-term performance.
"The moment of truth for AI has arrived once again. After four years of extraordinary returns, supported by corporate results, the market has said enough; it needs more proof to continue on its path. The heavy capital spending, the historic financings, interest rates, and the drop in profitability generated by some tech companies has shaken the foundations of the greatest revolution of our time, calling into question the current expansion cycle," say XTB.