The AI technology sell-off deepened as investors reassessed whether Big Tech’s enormous spending on artificial intelligence will produce strong enough returns. Technology shares fell sharply during the latest reporting period, even though demand for AI hardware and data-center equipment remained strong.
The Los Angeles Times reported that the Nasdaq 100 fell roughly 4%, wiping out more than $1 trillion in market value, while the S&P 500 dropped more than 2% on Friday afternoon. Barclays Private Bank said the Nasdaq 100 was nearing correction territory after a series of steep declines.
The central concern is not simply whether customers want AI. The supplied reports indicate that demand remains strong. Instead, investors are focusing on how the industry will finance the next stage of construction and whether future profits will justify the money being spent today.
Why the AI boom is under pressure
Technology companies are spending hundreds of billions of dollars on data centers, chips and research to build and test large language models. These models are systems that learn from large amounts of text and other data to generate responses, write content or perform tasks.
The Los Angeles Times said companies have not yet proved that they have enough customers for the technology to support the scale of investment. The same report noted that some companies have also said development may need to slow so that AI can be managed safely.
That combination is making investors more cautious. High AI profits remain some way off, according to the Los Angeles Times, while companies continue to require substantial spending. The result is a market that is demanding clearer evidence about future earnings before rewarding additional investment.
Strong demand is no longer enough
Barclays said AI fundamentals remain strong in absolute terms. It pointed to robust AI demand and full backlogs reported by ASML and TSMC, as well as better-than-expected results and higher guidance from Schneider Electric, a supplier involved in the data-center infrastructure chain.
Yet Barclays said those positive results did not produce lasting gains for the companies involved. In its analysis, the market debate had moved from demand to funding because good news was no longer enough to lift the wider AI group.
This distinction helps explain the sell-off. Investors can accept that companies want more AI capacity while still questioning who will pay for it and how quickly that spending can become profitable. Barclays described the funding question as the main issue facing the trade.
Capital spending is rising while cash flow weakens
The largest cloud and technology companies, often called hyperscalers, are continuing to increase capital expenditure. Capital expenditure means money spent on long-term assets such as data centers, servers and other equipment.
Barclays said every major hyperscaler had signalled that capital expenditure would rise again in the following year, in some cases sharply. It also said free cash flow was turning negative across the group. Free cash flow is the money left after a company pays for its operating needs and capital investments.
Amazon illustrated the pressure. The Los Angeles Times reported that the company’s quarterly results missed Wall Street expectations and that it recorded negative free cash flow of $42 billion while spending heavily on AI. Chief Executive Andy Jassy said Amazon expected to spend meaningfully more in 2027, with a stated expectation of attractive financial returns.
Market losses spread across technology
The latest results produced uneven reactions among major technology companies. Amazon, Alphabet, ServiceNow and Meta all saw their share prices fall during the period covered by the Los Angeles Times report. Microsoft initially gained after reporting results above Wall Street expectations, but its shares later closed down more than 1%.
Intel suffered one of the sharpest declines. Its shares fell more than 30% after the chipmaker gave a weaker fourth-quarter outlook and reported a slowdown in personal computer sales. Intel projected fourth-quarter adjusted earnings of 25 cents per share and revenue of $15 billion to $16 billion, below the expectations described in the report.
The Los Angeles Times said Intel also faced the effects of an explosion at a factory in Israel that killed two workers. The company expected the incident to reduce revenue by about $600 million. Rising chip prices were also hurting Intel and its customers, including the personal-computer market.
Investors are reassessing the market’s growth story
The sell-off has raised concerns that the strongest quarters for AI-linked companies may already have passed. Keith Lerner of Truist Advisory Services told the Los Angeles Times that investors wanted more validation that the AI trade remained intact, especially because technology and communications companies represented a large share of the market.
The report said earnings growth across the S&P 500 had slowed to roughly 26% about one-third of the way through the reporting season, compared with 32% in the second quarter. Strategists had warned that higher interest rates, tariff pressures and elevated oil prices could weigh on corporate results.
The technology and communications sectors were the only two sectors in the red for the month described by the Los Angeles Times. Kimberly Forrest of Bokeh Capital Partners said investors were trimming some technology gains and buying cheaper stocks elsewhere, rather than abandoning the wider equity market entirely.
What could steady the AI trade
Barclays said a clearer answer on funding could help stabilise the market. It identified a potential turning point in evidence that major spenders can control capital expenditure or begin rebuilding free cash flow. The report said the latest earnings season had not yet provided that reassurance.
Barclays also described a funding loop in which rising spending, weaker cash flow and investor concerns reinforce one another. This is the firm’s market analysis, not an established forecast. Its view is that the AI theme may need spending to adjust to what can be funded before investors regain confidence.
The outlook is therefore mixed. Demand for AI infrastructure remains strong, but the market is no longer rewarding demand alone. Investors are waiting for clearer evidence that the spending required to build AI systems can eventually support durable profits and healthier cash flow.
