The Nasdaq Composite entered its first three-week losing streak since March after falling 2.9% on Friday, as investors reassessed the financial viability of the artificial intelligence boom following disappointing earnings from major technology companies. Microsoft, Google and Amazon all reported capital expenditure figures or forecasts that came in below analyst estimates, despite posting cloud revenue growth that exceeded expectations. The results have prompted a broader reckoning about how the massive spending on AI infrastructure will translate into profits.
Microsoft lowered its capital expenditure forecast for the year to $170 billion from $175 billion, while Alphabet maintained guidance for up to $205 billion and Amazon reiterated roughly $220 billion in spending. More concerning to investors, however, was the cash flow picture. Amazon reported negative free cash flow of $42.4 billion for the trailing 12-month period, marking the second consecutive quarter of outflows. Google reported negative free cash flow of $9.1 billion, and Microsoft's positive free cash flow of $18.6 billion declined significantly for a second straight quarter. Microsoft announced plans to raise $25 billion in bonds to help finance infrastructure expansion.
The weakness extended to semiconductor stocks, with Nvidia trading lower alongside the broader sector after Intel issued a weak forecast that sent its shares to their steepest drop since the 1970s. Daniel Newman, CEO at Futurum Group, told CNBC that while companies remain committed to AI development, the recent results have created new market headwinds. "Everybody's still full steam ahead on AI, but all the things around it took an interesting turn this week," he said, noting that the hyperscalers' results have "raised eyebrows" and created "more doubt on capital structure."
The cash flow concerns take on added significance as AI startup Anthropic prepares for what could be a record-setting initial public offering in coming weeks. Anthropic disclosed in its prospectus a net loss of $80 billion for the first half of the year, alongside hundreds of billions of dollars in compute commitments. David Hsu, a professor at the University of Pennsylvania Wharton School, raised the central question weighing on investors: "It's a great technology, seems to do things that we never would have imagined, but how does that then translate into a viable business?"
Some relief came from Oracle, which said at its investor day that it will limit additional fundraising to $20 billion and turn cash flow positive in the second half of next fiscal year. Analysts at Citizens said this announcement eased "the biggest investor fear" that funding AI infrastructure would require unlimited debt and equity issuance. However, the broader IPO market has remained largely frozen since SpaceX's record offering in June, with multiple companies postponing or abandoning public offering plans.
For savers and investors in the United States, the market pullback reflects growing uncertainty about whether the enormous capital investments in AI infrastructure will generate returns sufficient to justify their costs and the funding mechanisms companies are pursuing.