Nasdaq falls over 2% to near 3-month low: 7 reasons behind the sell-off

The decline also came a day after Alphabet recorded its worst single-day fall, raising further questions about whether the massive investments in AI infrastructure are delivering the expected returns. Here are seven reasons behind the Nasdaq sell-off. For the fourth quarter, Amazon expects net sales of $240 billion to $247 billion (Reuters) Amazon's rising AI spending raises concerns Amazon shares fell around 2% after the company reported a sharp cash outflow in the third quarter and indicated that its capital expenditure could increase further next year.

The company has already been spending heavily on infrastructure to support its AI ambitions. The possibility of another increase in spending has raised concerns among investors about how long it will take for these investments to generate returns. Amazon recovered some of its losses from premarket trading but remained under pressure during Friday's session. Intel's weak outlook led to a sharp sell-off Intel was among the biggest losers on Friday, with its shares plunging 28% after the chipmaker issued a weaker-than-expected outlook for the current quarter.

The company also warned that the slowdown in the personal computer market could continue into next year. Intel's finance chief David Zinsner said on Thursday that the company did not expect to generate more cash than it spent this year. "Looking ahead, we see the PC slowdown continuing at least through the first half of next year," he said in the company's third-quarter earnings report. During the earnings call, Zinsner also said Intel had significantly increased its investment in equipment during the third quarter and expected the spending to be "even more significant" in the following three months.

The company's client computing and physical artificial intelligence group reported a 5% year-on-year decline in revenue to $8.1 billion. The weak outlook and concerns over cash outflows added to investor worries about the costs of building AI infrastructure. Chipmakers face broad-based selling The weakness in Intel extended to other major chipmakers, with investors pulling back from technology stocks.

Advanced Micro Devices (AMD) fell 9%, while Nvidia declined 3%. Broadcom shares were also down 5%. The data storage company also announced an eight-for-one forward stock split. The sell-off suggests that concerns are spreading across the semiconductor industry, which has been among the biggest beneficiaries of the AI boom. Alphabet's disappointing results add to AI concerns The latest decline comes a day after Alphabet shares recorded their worst single-day fall on record.

The Google parent lost more than $500 billion in market value on Thursday after reporting disappointing results in its search advertising business and a sharp increase in cash outflows. The company also reported negative free cash flow of $9.07 billion, adding to concerns about the financial burden of its AI investments. Alphabet shares fell another 1.2% on Friday, extending the losses from the previous session.

The company's results have also raised questions about the impact of its AI-powered search summaries on its traditional advertising business. Reddit and Roblox add to technology stock losses The sell-off was not limited to large technology companies. Reddit shares fell 26% after the social media platform reported weaker-than-expected daily user figures and warned that Google's growing use of AI-powered search was affecting referral traffic to its platform.

The biggest reason behind the selloff was Intel's revenue and earnings forecast for the next quarter ( AI generated) Roblox shares also dropped nearly 20% after reporting a decline in daily active users. These losses added to the pressure on technology stocks, as investors assessed whether companies across the sector could sustain their growth. Investors move towards safer sectors As technology stocks came under pressure, investors shifted towards traditionally defensive sectors such as consumer staples and healthcare.

According to Reuters, the consumer staples index rose 1.9%, while the healthcare index gained 1.7%. Walmart and Coca-Cola shares each rose nearly 2%, while Procter & Gamble gained more than 1%. Among healthcare companies, Merck and Amgen added around 2% each. The S&P 500 information technology index was the biggest drag on the broader market, falling 3.4%. It was on track for its biggest one-day decline since June 23.

The communication services index also declined 0.7% and was heading for its worst monthly performance since April 2022. Market experts said the movement indicated a change away from technology stocks rather than withdrawal from equities. "I don't think this is a broader reset… It's more of a rotation out of an extremely popular technology trade and into safer havens," Art Hogan, chief market strategist at B.

Riley Wealth, told Reuters. Investors question whether AI investments will deliver returns The larger concern behind Friday's sell-off is whether technology companies will be able to recover the huge amounts of money being invested in AI infrastructure. Major technology companies have committed billions of dollars to building data centres, buying advanced chips and expanding computing capacity. However, investors are increasingly looking for evidence that these investments will translate into higher revenues and profits.

Keith Buchanan of Globalt said investors were becoming more cautious about how companies planned to finance their AI investments and who would ultimately benefit from the returns. "The tone has changed a bit, and whether that changes the sustainability of the rotation is still yet to be determined," Buchanan told CNBC. "Last year was hope. This year is: At the end of day, how does this all work in real world terms, like how to finance [it] and who gets the economics.

Those questions are much more difficult to answer. There are real economy risks, and the market's picking up on that," he added. Chris Low of investment management firm FHN Financial also pointed to the challenges faced by major technology companies as they expand their AI operations. He told Reuters that companies such as Amazon and Google were "showing some pretty significant growing pains as they aggressively pursue the AI build-out".

"The thinking is that these signs suggest that the entire sector is going to slow down." As reported by Reuters, UBS has also advised investors to diversify their portfolios beyond AI stocks. In a report earlier this week, Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities for UBS' Chief Investment Office, said investors should look beyond the AI theme. "While we maintain a constructive outlook on the structural growth of the AI theme, high expectations and potentially wide differences in company outcomes underscore the risks of single-stock concentration," she told Reuters.

"We think investors should ensure their equity portfolios are broadly diversified." Art Hogan also pointed to the high expectations surrounding major technology companies. "It's more a question of what is priced into a stock and how much investors are expecting. Alphabet, Amazon and Intel fall into the category where it doesn't take much to trigger a significant disappointment," he told Reuters. Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.