Inside Big Tech companies' big slump this week

It was a bad week for Big Tech

Google’s parent company, Alphabet, lost $500 billion in stock value on Thursday following a rough third quarter earnings report.

On Friday, more tech giants joined the fray: Meta reported a negative free cash flow, and its stock dropped, along with Microsoft and Amazon. Intel fell the most, down 28.58% at the close of the market on Friday. It was Intel’s worst day on the stock market since 1974.

What struck Daniel Newman, CEO of the Futurum Group, was just how fast these companies took a turn for the worse.

“Monday, Tuesday, everyone was smiling,” he said. “Wednesday, Thursday, Friday, everybody was crying.”

Newman said that all these companies invest a lot in AI — but that wasn’t the problem.

“SpaceX, Meta, Google, Amazon, Microsoft, all actually performed extremely well inside their cloud businesses,” he said, “but interestingly enough, we started to see some cracks inside other parts of the businesses.”

Google’s ad revenue isn’t working as well. Amazon’s e-commerce is seeing stubbornly slow growth. Microsoft is selling bonds to bankroll its spending. Intel isn’t selling enough PC components.

“They're kind of reaching their limits of being able to finance their growth,” said Peter Cohan, a management professor at Babson College. “And investors are getting impatient for a payoff.”

Cohan said that tech companies have been using their legacy businesses to pay for all their AI investment for a while and promising a big payout.

“There's a lot of jitters about how much money people are spending, companies are spending on AI capital expenditures, and not necessarily generating a clear return on investment,” he said.

At first blush, it looks similar to the dot-com bubble: Companies invested a lot, then failed to meet expectations, then said it would pay off — and then, it didn’t pay off.

“This time around, we're not seeing that,” said Matt Bryson, managing director of equity research at Wedbush Securities.

Bryson said that back then, the demand for more tech started to soften. That’s not what is happening now.

“No one is halting spend or slowing spend,” Bryson said. “The problem is, people keep on spending more and keep on telling investors that they're going to spend more.”

And with endless demand for more AI, the tech companies just keep looking for more ways to up their supply.