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Nasdaq-100 falls into its third correction this year as AI spending doubts grow

Investors are questioning when Big Tech's hundreds of billions in AI spending will pay off, and weak results from Alphabet and disappointing forecasts from Intel and ServiceNow added to the doubts.

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Why it matters: The tech stocks that lead the market are swinging hard on AI doubts, and Goldman expects hyperscaler spending to keep rising.

For information only, not investment advice. Prices delayed.

Tickers: GOOGL, INTC, NOW, MRVL, LITE

An unfinished data center under construction at dusk, with bare steel roof trusses, wrapped cooling units and idle cranes.

The Nasdaq-100 fell into a correction on Monday, its third of the year, as investors grew more doubtful about the payoff from Big Tech's AI spending, Bloomberg reported. A correction means a drop of more than 10% from a peak; for the tech-heavy index, that peak came on Oct. 6.

Trading has whipsawed this year, Bloomberg wrote, with investors "seemingly changing their minds on AI by the day." Wall Street is worried about the cost of the AI buildout and when the hundreds of billions of dollars being spent will show clear signs of a payoff.

Earnings fed the doubts

Alphabet ($GOOGL) had its worst day ever last week after it reported weaker-than-expected revenue for advertising and search. Beyond the biggest tech names, chipmaker Intel ($INTC) and software firm ServiceNow ($NOW) both suffered historic selloffs after disappointing forecasts, according to Bloomberg.

On Monday, US indexes rose early before reversing in the afternoon, Reuters reported. Among the decliners was Marvell Technology ($MRVL), after it agreed to a $115 billion deal for Lumentum ($LITE), a maker of lasers for AI networks.

Spending keeps climbing

Goldman expects the spending to keep climbing. Goldman Sachs analysts expect hyperscalers' capital spending to nearly double to $800 billion this year and reach $1.2 trillion in 2027, Reuters reported.

I don’t think the AI trade is dead, but it did get ahead of itself.

Brian Culpepper, portfolio manager at James Investment Research

Don't expect calm soon. "The bar for performance is rising and higher volatility in the AI trade is likely to be the new normal in this stage of the cycle," said Mark Haefele, CIO at UBS Global Wealth Management.

Sources

  1. Nasdaq 100 Enters Correction as Megacap Results Amplify AI Fears, Bloomberg (via Mint)
  2. US tech selloff drags global stocks back into the red, Reuters (via Euronext)

Tags: markets-moves · ai · big-tech