What's fuelling the Nasdaq crash? AI spending fears, Intel rout and Anthropic debt concerns drive selloff

The Nasdaq Composite is now down 7.8% from its record closing high on October 6. The selloff reflects growing investor unease over Big Tech's AI spending spree. Companies are committing hundreds of billions of dollars to data centres, chips and computing infrastructure, but markets want clearer evidence of when that investment will translate into profits. More than $2 trillion in market value is set to be wiped off the Nasdaq 100 in October, with the index down over 5.8% this month, according to Bloomberg.

The Nasdaq 100 and Nasdaq Composite are separate indices. Amazon, Alphabet, Microsoft and Meta are together on track to spend more than $700 billion on capital investment this year, much of it on AI infrastructure. The companies are racing to expand data centre capacity and secure the chips and computing power needed to develop and run AI models. Amazon came under pressure after its latest results missed earnings expectations.

It signalled more aggressive AI spending, despite continued acceleration in its cloud computing business, Amazon Web Services. Intel's disappointing outlook sent its shares plunging 28.6% on Friday, adding to the pressure on technology stocks. Nvidia fell 4.2%, AMD dropped 10.9% and Micron declined 5.3%. The broader semiconductor index lost 7.2%, taking its monthly decline to more than 15%. The selloff extended to AI infrastructure suppliers, with Dell falling 10.8%, HP declining 9.6% and data centre company CoreWeave losing nearly 10%.

Concerns over the cost of the AI boom were compounded by a Financial Times report that Blackstone had told investors Anthropic might not secure an investment-grade credit rating immediately after its planned IPO. The private capital firm reportedly expects a rating in the double-B range or above, based on guidance from credit rating agencies. Such a rating would place Anthropic in the speculative-grade category and could make borrowing more expensive.

The issue is significant given Anthropic's plans to spend more than $800 billion on computing infrastructure between now and 2045. An investment-grade rating would help it access debt at lower borrowing costs. Fitch, Moody's and S&P have not officially assigned the company a rating, the FT reported. However, the $18-billion junior debt component of a chip financing deal received a double-B-plus rating with a positive outlook from Kroll Bond Rating Agency and a double-B rating from Morningstar DBRS, according to people familiar with the matter cited by the newspaper.

The financing of AI expansion is emerging as another pressure point. Meta, Amazon and Alphabet have issued hundreds of billions of dollars in bonds over the past four years, while Microsoft is reportedly planning a $25-billion US investment-grade bond sale, its first in more than nine years. Meta's plans for a record $97.5-billion fundraise have also raised questions about shareholder dilution and companies' growing reliance on capital markets to finance AI investments.

Morgan Stanley estimates that AI infrastructure spending will exceed $1 trillion next year. JPMorgan expects global AI capital expenditure to reach $5.5 trillion by 2030, including around $900 billion in 2026. The selloff, however, does not point to a collapse in AI demand. Amazon's cloud business continued to accelerate, while Microsoft and SpaceX have shown signs that their AI investments are beginning to generate returns.

According to John Bilton of JPMorgan Asset Management, companies were not seeing negative growth in aggregate, while demand for data continued to rise, reported Reuters. Alphabet had suffered its biggest one-day percentage decline on record on Thursday after its results raised concerns over its core search advertising business and a sharp increase in cash outflows. Its spending outlook added to investor concerns about the scale of AI investment.

The weakness comes despite a relatively strong US earnings season. Of the 299 S&P 500 companies that had reported third-quarter results, 82% had beaten consensus estimates, according to LSEG data cited by Reuters. Analysts expected year-on-year earnings growth of 31.6%. The technology selloff coincided with weakness in cryptocurrency-linked stocks after Binance acknowledged a major security breach.

Accordhackers had stolen $6.3 billion from the exchange, sending Coinbase, Strategy and Robinhood down between 7.2% and 10.6%. Oil prices rose after Iran said four tankers had struck mines in the Strait of Hormuz. Brent crude gained 2.4% to $117.64 a barrel, while US West Texas Intermediate rose 2.1% to $104.12. ExxonMobil gained 2.2% after reporting that third-quarter profits more than doubled to $15.4 billion, supported by higher oil prices and refining margins amid the US-Iran war.

The weakness in US technology stocks also dragged down overseas markets. South Korea's Kospi fell 3.5% and Japan's Nikkei 225 declined 2.1%, while Hong Kong's Hang Seng Index rose 1.5%.