Alphabet, Amazon Earnings Spark Cash-Burn Concerns
The AI rally leading this bull market hit turbulence, starting with Google parent Alphabet's earnings released after the close on Wednesday, October 28. Its third-quarter revenue and profit missed expectations, with negative free cash flow of US$9.07 billion, far exceeding market expectations, and it guided for next-year capital expenditure to be higher than this year's range of US$195-205 billion, estimated at over US$300 billion. After the close on Thursday, Amazon followed a very similar script, and the two CSP giants' earnings reignited investor worries that AI is burning too much cash.
Intel Plunges 28.58%, Dragging SOX Sharply Lower
After releasing earnings, Intel shares collapsed 28.58% on Friday, dragging the Philadelphia Semiconductor Index down 7.20%. Hit by slowing PC business, Intel's current-quarter outlook missed expectations, making it a victim of surging memory prices and shortages of other components. As the biggest winner of the AI CPU boom, Intel also faces the problem of burning cash too aggressively. With cash-is-king sentiment prevailing, CFO Zinsner said the company is expanding manufacturing capacity, is unlikely to achieve positive cash flow this year, and still plans to spend US$20 billion in capital expenditure this year, with capital expenditure set to increase sharply in 2027 as more chipmaking equipment is acquired.
US Stocks Close Lower on Worries Over Returns on Sky-High Investment
Dragged down by AI-related and technology stocks, the S&P 500 closed down 1.82% and the Nasdaq fell 2.86% on Friday. The related earnings reports left investors worried about the financing and returns of sky-high AI investment, which has been central to driving this bull market. Mara Norton, chief investment strategist at retirement and wealth services firm Empower, said the stock market seems somewhat turbulent, with the turbulence really coming from concerns about AI, and that concern seems likely to persist, if not worsen. Chris Galipeau, chief market strategist at Franklin Templeton Institute, said the bar for earnings performance is very high, and if you fail to meet or clear the bar, you are in big trouble.
Apple Earnings, Elections and Jobs Report Due Next Week
Apple will report earnings after the close on Monday Eastern Time, with the iPhone maker up about 27% so far this year. Semiconductor giants AMD and Qualcomm, as well as big data analytics and AI software giant Palantir, will also report results next week, providing more perspective on the AI trade. More than 100 S&P 500 constituents will report earnings next week, including McDonald's, Amgen and oil industry giant ConocoPhillips. Next week's US midterm election results could determine the future direction of AI regulation and could also influence market performance. The US October nonfarm payrolls report due next Friday will provide more clues about the US economy and will be critical for the Federal Reserve's rate path.