Amazon and Intel Drag Futures Lower as AI Spending Faces New Scrutiny
Nasdaq futures tumbled more than 2 percent on Friday as Amazon signaled its artificial intelligence spending boom is far from over and Intel warned it would burn cash this year, heightening concerns over the rising cost of the AI buildout.
Shares of Amazon were down 7.2 percent in premarket trading after the company reported a sharp cash outflow in the third quarter and signaled another increase in capital expenditures next year, on top of already elevated outlays. Intel tanked 25 percent in premarket trade after warning of a weak PC market, manufacturing bottlenecks and heavy spending to expand production.
Amazon and Intel together were poised to lose about 300 billion dollars in market value if the losses held, according to Reuters.
"This is a good example of how the AI trade has changed," Jake Behan, head of capital markets at Direxion, told Reuters. "At this point, the market isn't just asking how fast you can grow. It's asking what you have to spend to get there."
The selling followed a bruising Thursday session. The Nasdaq Composite fell 1.38 percent to 26,184.72, the S&P 500 slipped 0.30 percent to 7,720.39 and the Dow Jones Industrial Average eased 0.25 percent to 52,342.56. Alphabet suffered a record 12.64 percent plunge Thursday after its earnings disappointed.
The pressure spread across the chip sector in premarket trading. Nvidia was down 2.5 percent, AMD slid 7 percent and Broadcom lost roughly 4 percent, according to Reuters.
Reddit slid 21.1 percent in premarket trading after chief executive Steve Huffman warned that total daily active unique visitors could fall by a low double-digit percentage in the fourth quarter. Memory company SanDisk sank 8.05 percent despite beating first-quarter earnings and revenue forecasts, according to TheStreet.
The earnings behind the moves sharpened the spending question. Amazon's trailing 12-month free cash flow swung to a 42.4 billion dollar outflow from a 14.8 billion dollar inflow a year earlier, with about 220 billion dollars in capital spending planned for 2026. Intel warned the PC slowdown would last through at least the first half of 2027 and gave fourth-quarter guidance well below expectations.
Several companies have tapped the bond market to finance AI investments, amplifying concerns that debt-funded spending will become harder to justify as borrowing costs rise. Meta reported cash burn in the September quarter last week. Microsoft, the only exception among the group, nevertheless raised 25 billion dollars through a debt sale on Thursday, according to Reuters.
Concerns about borrowing conditions come at a time when the Federal Reserve is expected to raise interest rates by more than 50 basis points by mid-2027, according to data compiled by LSEG. The Fed held its main lending rate steady earlier this week, a decision widely viewed as a pause, with analysts expecting the central bank to raise rates as soon as December.
On a monthly basis, the indexes diverge. The S&P 500 and the Dow are headed for a positive month, while the Nasdaq is set for a monthly drop after two consecutive monthly gains. The communication services sector is headed for its worst monthly showing since April 2022, according to Reuters.
The AI trade got a brief reprieve earlier this week when AI lab Anthropic unveiled its IPO filing. Energy giants Chevron and ExxonMobil were among the prominent companies reporting before the bell Friday.
At 4:04 a.m. ET, Dow E-minis were down 25 points, or 0.05 percent, and S&P 500 E-minis were down 77.5 points, or 1 percent. Nasdaq 100 E-minis were down 640 points, or 2.16 percent.
This article reports market movements and is not investment advice.
