Shares of US technology giants Alphabet, Amazon and Intel came under heavy selling pressure on Thursday, plunging up to 23% in extended trading as investors grew increasingly concerned about rising artificial intelligence spending and weakening cash flows.
While Alphabet and Amazon reported significant cash outflows in the September quarter, Intel issued a subdued outlook amid soaring prices and weak demand. The developments added to concerns that capital expenditure on AI infrastructure will remain elevated in the coming quarters.
Alphabet shares plunged more than 13%, marking their worst-ever single-day performance and wiping out half a trillion dollars in market capitalisation. The sell-off followed the company's third-quarter results, which missed Wall Street expectations, with slowing growth in its core search advertising business and rising AI expenditure adding to investor concerns.
The pressure on Alphabet's shares was compounded by a sharp deterioration in its cash flow. The company reported negative free cash flow of $9.1 billion in the September quarter, against analysts' expectations that it would remain close to breakeven.
Capital expenditure surged to $51.4 billion, more than double the amount spent in the corresponding quarter last year, as Alphabet stepped up investments in data centres, computing infrastructure and AI capabilities. The September quarter marked its second consecutive quarter of negative free cash flow, following an outflow of $5.9 billion in the June quarter.
Amazon's $42 billion cash flow hit
Amazon shares fell more than 4% on Thursday after the e-commerce and cloud computing giant reported weaker-than-expected third-quarter results and a sharp deterioration in free cash flow amid rising AI investments.
The company reported earnings of $1.89 per share, below analysts' estimates of $1.96, according to LSEG. Revenue stood at $201.94 billion, marginally short of the Street's estimate of $202.31 billion.
Amazon maintained its 2026 capital expenditure outlook, reiterating that it expects spending to reach $220 billion during the year.
The technology industry's largest cloud and internet companies have been accelerating investments to keep pace with growing demand for AI infrastructure. Amazon CEO Andy Jassy told investors during a conference call that the company expects to “spend meaningfully more in 2027”. He also said Amazon has a “clear line of sight to attractive financial returns” from these investments.
However, the aggressive investment cycle has taken a toll on the company's cash flow. Amazon reported negative free cash flow for the second consecutive quarter, with the trailing 12-month outflow reaching $42.4 billion, a 386% swing year-on-year. In the previous quarter, the company had reported negative free cash flow of $7.6 billion.
For the fourth quarter, Amazon forecast revenue of $240 billion to $247 billion. The midpoint of the guidance was below Wall Street's estimate of $244.5 billion, according to LSEG.
Intel shares plunged more than 23% in extended trading on Thursday after the chipmaker issued a weak fourth-quarter forecast, citing continued weakness in the global PC market.
The company's client computing and physical AI group reported a 5% year-on-year decline in revenue to $8.1 billion, missing estimates. The weakness was partly offset by a 78% jump in data centre and AI revenue to $7.3 billion.
The pressure on the PC business comes amid a decline in global shipments. PC shipments fell 4% year-on-year in the second quarter as memory and other component costs surged, according to Counterpoint Research.
Intel finance chief David Zinsner said the slowdown was expected to persist. “We see the PC slowdown continuing at least through the first half of next year,” he said in the release. “We will continue making disciplined investments in capacity and working capital to increase supply and support future growth.”
AI spending to continue?
The scale of investment planned by the technology industry remains substantial. Six large hyperscalers are expected to invest $7.7 trillion between 2026 and 2030, including about $6.8 trillion above their pre-AI capital expenditure run-rate, according to UBS Global Research.
To generate a 15% return on invested capital by 2031, these companies would need to deliver roughly $1 trillion in additional earnings before interest and taxes. At current cloud margins, that would translate into approximately $3.4 trillion in incremental revenue.
The magnitude of the spending has intensified scrutiny over whether investments in AI infrastructure can generate returns commensurate with the capital being deployed. Concerns have also been fuelled by weakness in bonds issued by some technology companies, particularly neoclouds such as CoreWeave.
Will numbers take a hit?
Hyperscalers have historically generated returns of more than 40% before tax from asset-light businesses spanning software, social media and e-commerce. The rise of AI is changing that financial profile, making their businesses increasingly asset-heavy.
UBS expects this shift to lead to a 20-25 percentage point decline in return on invested capital as AI accounts for a larger share of their operations.
Even after this decline, achieving a 15% ROIC by 2031 would require around $1 trillion in additional EBIT, slightly less than twice the group's current combined EBIT. At prevailing cloud margins, this would imply an incremental revenue requirement of about $3.4 trillion.
The key question, therefore, is not just how much demand AI services attract, but how effectively companies can monetise that demand.
UBS said the spending could still generate acceptable returns, but this would depend on two conditions: AI must deliver genuine productivity gains, and the AI ecosystem must be able to capture a meaningful share of those gains through effective monetisation.
