Taiwan and US Tech Stocks Tumble Together
On 10月30日, Taiwan stocks plunged as much as 1642 points intraday, closing down 1156 points at 45211 points, down 2.49%, falling below the half-year line. Foreign investors posted net selling of over 1100億元 in a single day, TSMC fell 45元, with a cumulative drop of 2728 points for the whole of 10月. In the previous trading day, US tech stocks had already weakened, with the Nasdaq down 1.38% and the Philadelphia Semiconductor Index down 1.42%. The market blamed selling pressure on third-quarter earnings from Alphabet and Amazon, as both companies are spending faster than they earn to build AI data centers.
Capital Expenditure Soars, Free Cash Flow Turns Negative
Alphabet reported earnings on 10月28日, with quarterly spending reaching 514億美元 and free cash flow negative for a second straight quarter, sending its shares down more than 12%, while long-term debt expanded to nearly six times within a year. Amazon's free cash flow swung from positive to negative over the past year, with a shortfall of 424億美元 that must be filled by debt, and its shares tumbled about 10% in after-hours trading. Free cash flow refers to cash earned from core operations minus capital expenditure on plants and equipment that can be freely used; turning negative means spending has exceeded earnings.
High Rates and Oil Prices Raise Funding Costs
Combined capital expenditure by Alphabet, Amazon, META and Microsoft has climbed from 1400億美元 in 2023 to 7000億美元 this year, and is set to exceed 1兆美元 in 2027, with none announcing cuts so far. Alphabet raised nearly 290億美元 through bond issuance in this quarter alone, equivalent to 9400億元新台幣. Goldman Sachs estimates about 35% of US cloud giants' 2027 capital expenditure will need debt financing, while Morgan Stanley also estimates 2027 will see the largest cash shortfall. The 10-year US Treasury yield, a measure of long-term borrowing costs, was only 3.96% the day before the Iran war broke out, but surged past 5% in just a few months, hitting a new high since 2002. Oracle, for example, saw quarterly interest expense surge 55% from a year earlier.
Taiwan's Bid for 50,000 Points Hinges on Rates
High rates reflect heavy US government debt as well as inflation pushed up by war in the Middle East. According to The New York Times, the US and Israel are planning renewed military strikes on Iran after the 11月3日 midterm elections, possibly targeting energy facilities, with Brent crude rising from below 97美元 per barrel in early 10月 to above 112美元 on the 30日. US September consumer prices rose 3.7% year-on-year, above expectations, while producer prices rose 6.3% year-on-year, the largest gain since 2022. The Federal Reserve raised rates in 9月 for the first time in three years, held steady in 10月, but two officials voted for another hike, with markets pricing in over a 70% chance of another hike in 12月. For now the giants have not pulled back, and Taiwan's supply chain continues to report strong orders, but with the root cause of rates unresolved, funding costs will be hard to ease. Weaker emerging cloud operators such as CoreWeave have seen credit spreads widen, with some even facing difficulty issuing debt. This recalls the aftermath of the telecom bubble in early 2005, when operators built out fiber aggressively on the belief that internet traffic doubled every hundred days, funds withdrew after rate hikes, many companies went bankrupt, idle fiber was sold cheaply, and Google, then less than seven years old, stepped in to buy. Roles are now reversed, and the market believes Taiwan stocks still have a high chance of reaching 50,000 points, but the market will swing between joy over orders and fear of fund withdrawal, and who can survive the expensive wait will only become clear once the rate tide recedes.