Tech sell-off drives third consecutive week of losses for Wall Street

The S&P 500 fell 1.80% to 7,580.21 points, according to preliminary data. The Nasdaq Composite, heavily weighted with technology stocks, dropped 2.84% to close at 25,440.68 points, while the Dow Jones Industrial Average decreased 1.09% to 51,770.58 points. The S&P 500 and Nasdaq finished October in negative territory; the Dow Jones, however, closed the month in positive territory.

“You could say that this week, and not just today, has largely revolved around the future of AI: what form it will take, whether it will offer a positive return on investment, and if so, how quickly,” said Oliver Pursche, Senior Vice President at Wealthspire Advisors in New York.

Intel’s stock plummeted 28.6%, its largest decline since 1974, despite the company reporting a quarterly profit that exceeded analyst expectations. The drop was attributed to a profit forecast for the fourth quarter of the year falling short of market expectations. The company’s CEO, Lip-Bu Tan, stated that the personal computer industry remains under pressure.

Amazon fell 1.4% after reporting a summer profit below what analysts predicted. A key concern for investors was the company’s consumption of $42.4 billion in cash over the past twelve months, according to the free cash flow measurement. Amazon allocated $94.8 billion to property and equipment, primarily in investments linked to artificial intelligence.

Shares of semiconductor companies experienced significant declines, causing the Philadelphia SE Semiconductor index to close the month with losses. Nvidia, the chip company that has become a symbol of the AI boom, fell 4.2% and was the largest individual drag on the S&P 500, even surpassing Intel.

Concerns are mounting that investors are now demanding concrete proof that these investments, totaling hundreds of billions of dollars, will generate sufficient profits and productivity to justify the spending.

“We’re moving out of the hope and dream phase of the AI business and into the ‘show me’ phase,” said Joe Tigay, Portfolio Manager at Equity Armor Investments, in a note to investors.

Simultaneously, shares of chip companies and other beneficiaries of the race to build AI data centers faced pressure due to fears that elevated interest rates will slow the expansion of that infrastructure.

The cryptocurrency sector also experienced sharp declines following a hack on Binance, the world’s largest cryptocurrency exchange. The price of Bitcoin fell below $77,000, down from over $86,000 at the beginning of the month. A U.S. blockchain intelligence firm claimed a North Korean unit was responsible for the attack, which affected over $6 billion in cryptocurrency assets.

Coinbase Global fell 10.6% despite reporting quarterly results that exceeded analyst expectations. Strategy, which reportedly holds approximately 4% of the total Bitcoin in circulation, retreated 7.8%. The company also reported a profit that surpassed expectations, although it announced that its CFO will resign next week for personal reasons.

Outside of the technology sector, the market showed greater resilience: nearly as many stocks rose as fell within the S&P 500 index. Exxon Mobil advanced 2.2% and Chevron added 1.8% after both oil companies outperformed quarterly profit expectations, driven by a sharp increase in their profit margins due to supply disruptions stemming from the conflict between the United States and Israel against Iran and the war in Russia and Ukraine.

Mondelez International rose 3.9% after the company behind Oreo and Ritz crackers reported growth that exceeded expectations. Colgate-Palmolive climbed 2.3% after price increases on its products worldwide allowed it to surpass revenue and profit forecasts.