Major U.S. technology companies reported earnings this week, with most results missing market expectations. The main reason is continued heavy investment in artificial intelligence infrastructure, with massive spending squeezing profits and cash flows and triggering heavy selling pressure on Wall Street. Google, Facebook, Intel and Amazon all fell sharply after their earnings calls, showing that the phase when AI vision alone could lift share prices is over, as the market now demands actual profit results.
Alphabet Falls Over 12% as Free Cash Flow Turns Negative
Alphabet, Google's parent company, became the epicenter of the selloff, with quarterly revenue missing targets and slowing growth in its core search business, seen as the first warning sign of AI chatbots eroding the search market, sending shares down more than 12%. To build out AI infrastructure, the company's free cash flow turned to negative US$9 billion, three times the loss estimated by Wall Street, far exceeding market tolerance.
Intel, Amazon and Meta Under Pressure Together
Intel was hit by weak PC processor demand and supply chain issues, with revenue and profit falling well short of expectations and shares collapsing 23%. Amazon's cloud business continued to grow, but to capture AI demand, third-quarter capital spending was staggeringly high, pushing earnings per share below market expectations, while fourth-quarter revenue guidance also disappointed, sending shares down 7%. Facebook, with its cash reserves hollowed out by AI investment, was forced to raise funds through a rare new share issuance, also raising market concerns.
Musk Warns of Compute Collapse as Microsoft Holds Up
The CEO of Tesla and SpaceX recently warned publicly that more than 200 emerging AI cloud compute service providers will face a wave of collective bankruptcies and consolidation. In recent weeks bond markets have almost cut off financing to companies lacking independent revenue sources and relying solely on AI data centers. New cloud vendors represented by Nebius and CoreWeave have mostly expanded rapidly by purchasing Nvidia chips with large borrowings, and once banks and bond markets stop lending, their funding chains could break at any time. The only exception was Microsoft, benefiting from a 46% surge in its cloud business and free cash flow beating expectations by US$10 billion, temporarily holding its ground in the AI cash-burn battle. The market worries that if companies continue to borrow and burn cash regardless of cost, the dot-com bubble could repeat itself.