By Shashwat Chauhan
Oct 30 (Reuters) - Nasdaq futures tumbled more than 2% on Friday as Amazon signaled its AI spending boom is far from over and Intel warned it would burn cash this year, heightening concerns over the rising cost of the AI buildout.
Shares of Amazon.com were down 7.2% in premarket trading after the company reported a sharp cash outflow in the third quarter and signaled another increase in capital expenditures next year, on top of already elevated outlays.
"This is a good example of
how the AI trade has changed," said Jake Behan, head of capital markets at Direxion.
"At this point, the market isn't just asking how fast you can grow. It's asking what you have to spend to get there."
The AI trade has run into turbulence recently as investors grew uneasy about the billions Big Tech has poured into scaling up AI infrastructure while awaiting evidence of stronger returns.
Several companies have tapped the bond market to finance those investments, amplifying concerns that debt-funded spending will become harder to justify as borrowing costs rise.
Shares of Alphabet slipped 0.9%, extending losses after a record selloff in the previous session when the Google parent reported disappointing results in its search-advertising business and a sharp increase in cash outflows.
Meta reported cash burn in the September quarter last week. Microsoft, the only exception, nevertheless raised $25 billion through a debt sale on Thursday.
Intel tanked 25% in premarket trade on Friday after the chipmaker warned it would burn cash this year due to a weak PC market, manufacturing bottlenecks and heavy spending to expand production.
Amazon and Intel are together poised to lose about $300 billion in market value, if losses hold.
The broader semiconductor space was under pressure, with Nvidia down 2.5%, AMD sliding 7% and Broadcom losing roughly 4%.
On the earnings front, energy giants Chevron and ExxonMobil are some of the prominent companies reporting before the bell.
At 04:04 a.m. ET, Dow E-minis were down 25 points, or 0.05%, and S&P 500 E-minis were down 77.5 points, or 1%. Nasdaq 100 E-minis were down 640 points, or 2.16%.
The S&P 500 and the Nasdaq are on course for weekly gains, as the AI trade got a brief reprieve earlier this week when AI lab Anthropic unveiled its US IPO filing.
On a monthly basis, however, the indexes diverge as the Nasdaq is set for a monthly drop after two consecutive monthly gains, while the S&P 500 and the Dow are headed for a positive month.
Nine of the 11 S&P 500 sectors were set for monthly gains, barring technology and communication services. The communication services sector is headed for its worst monthly showing since April 2022.
Concerns about borrowing conditions come at a time when the US Federal Reserve is expected to hike interest rates by more than 50 basis points by mid-2027, according to data compiled by LSEG.
The Fed earlier this week held its main lending rate steady, as expected, though analysts viewed the decision as more of a 'pause', widely expecting the central bank to hike rates as soon as December.
Among other early movers, social media platform Reddit slid 21.1% after CEO Steve Huffman warned that total daily active unique visitors could fall by a low double-digit percentage in the fourth quarter.
(Reporting by Shashwat Chauhan in Bengaluru; Editing by Sherry Jacob-Phillips)
