October is ending as the month the AI trade finally met its skeptics. Reuters reported on Friday that more than 2 trillion dollars in market value is set to be wiped from the tech-heavy Nasdaq 100 this month, a loss slightly larger than the entire market value of SpaceX. The index has fallen more than 5.8 percent so far in October, as a week of big tech earnings intensified investor scrutiny of whether the billions being poured into artificial intelligence can generate returns quickly enough.
The damage was concentrated in the companies spending the most. Alphabet suffered its biggest one-day percentage drop on record on Thursday, after disappointing results in its core search advertising business and a massive acceleration in cash burn. Meta Platforms added to the unease with plans for a record 97.5 billion dollar fund raise, which heightened concerns about shareholder dilution and whether mounting AI spending could force other big tech companies to tap capital markets more heavily. Meta, Alphabet and Amazon all raised their spending forecasts further as they race to expand AI infrastructure.
The worry is increasingly about debt, not just share prices. Microsoft is reportedly planning to raise about 25 billion dollars through its first US investment-grade bond sale in more than nine years, while Meta, Amazon and Alphabet have together issued hundreds of billions of dollars in bonds over the past four years. Morgan Stanley forecasts that capital spending on AI infrastructure will surpass a trillion dollars next year. Concern is spreading into credit markets, where the cost of insuring against debt default has surged, challenging the view that the companies at the heart of the AI boom are insulated from macroeconomic pressures, especially as rising borrowing costs make debt-funded investment more expensive to justify.
The underlying businesses, notably, are not collapsing. Revenue across the Magnificent Seven has remained strong since the launch of ChatGPT in 2022. Amazon Web Services continued to accelerate, Meta offered better-than-expected revenue growth and an upbeat outlook, and Microsoft forecast strong cloud growth, with Microsoft and SpaceX breaking from the gloom as results that showed AI spending starting to pay off. "It may be that we've overestimated how strong the growth might be, but they're not going negative in aggregate," said John Bilton, global head of strategic research at Multi-Asset Solutions, pointing to an "insatiable and growing demand for data."
The scale of the buildout explains both sides of the argument. J.P. Morgan expects global AI capital spending to reach 5.5 trillion dollars by 2030, with 900 billion dollars spent in 2026 alone, and notes that this year's spending by Amazon, Alphabet, Meta, Oracle and Microsoft will likely equal their cumulative spend since November 2022. Numbers that large can be read as conviction or as excess, and this month investors chose excess.
Two more verdicts are still to come: Apple reports next week, and AI bellwether Nvidia follows in mid-November. Until then, the question hanging over the industry is narrower than whether AI demand is real. It is whether the returns arrive fast enough to justify the pace — and the price — of the spending.