Investors face a choice between selling technology stocks and buying the dip after Alphabet and ServiceNow suffered their worst one-day share price falls on record.
Alphabet, the Google owner, lost about $480 billion of market value on Thursday, a fall of 12.6%, after search advertising revenue missed forecasts and free cash flow, the cash left after capital spending, was negative.
ServiceNow, the workflow software company, fell 27% after results that beat its own guidance but not analysts' forecasts, while Fortinet, the cybersecurity group, dropped 20% despite beating estimates and raising its billings guidance.
Intel, the chipmaker, fell more than 20% in after-hours trading after forecasting fourth quarter revenue of $15 billion to $16 billion, below the $17 billion analysts expected, and blaming higher memory prices for weak PC demand.
Amazon, the online retailer and cloud computing provider, fell 7% before the US market opened on Friday after quarterly capital expenditure of $77.3 billion, against forecasts of $58.7 billion, and a free cash outflow of $42.4 billion over 12 months.
The Nasdaq fell about 2.5% in early trading on Friday and was heading for a $2 trillion loss in market value in October, Reuters reported.
The case for selling
Bears say the cost of the artificial intelligence (AI) building boom is outrunning the cash the biggest spenders generate.
Of Alphabet, Amazon, Microsoft and Facebook owner Meta, only Microsoft kept free cash flow positive in its latest results, yet it still sold $25 billion of bonds this week, its first US investment grade bond sale since 2017.
Alphabet expects to spend $195 billion to $205 billion this year and Amazon about $220 billion, and both have said spending will rise in 2027.
Michael Hartnett, chief investment strategist at Bank of America, calculates that the hyperscalers, the cloud giants building AI data centres, have sold $182 billion of bonds and $89 billion of shares this year, and he sees better value in their bonds than their shares.
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The case for staying put
Others argue the selling has gone too far.
Angelo Zino of research firm CFRA told Yahoo Finance the pullback "probably represents a buying opportunity".
Alphabet's earnings miss partly reflected an $8.2 billion unrealised loss on its SpaceX stake, Google Cloud revenue more than doubled, and the shares trade on about 19 times expected 2027 earnings.
In a note dated 30 October, Yorkville Ives, a New Jersey-based US broker, said this was not the time to panic and sell the tech winners.
Analyst Dan Ives and his co-authors said evidence from enterprise AI projects looks stronger than a week ago and that 2027 should be the year AI revenue starts to justify the spending, though they acknowledged that holding on requires patience.
The next tests are Apple's results next week and those of Nvidia, the AI chipmaker, in mid-November.
