NEW YORK: Technology stocks came under heavy selling pressure on Friday as investors questioned whether massive, debt-funded investments in artificial intelligence were justified by the industry’s high valuations.
Futures tracking the S&P 500 pointed to a 1% decline when U.S. markets opened, with technology shares expected to lead the losses. Intel shares plunged after the chipmaker reported results below Wall Street expectations, while Amazon fell about 6% in premarket trading after its earnings also missed analysts’ forecasts.
The technology sell-off, however, has not triggered a broader retreat from the stock market. Gains in energy, utilities and consumer staples have helped support the wider market, suggesting investors are shifting money into other sectors rather than abandoning equities.
Exxon Mobil shares rose nearly 2% in premarket trading.
The S&P 500 was on track to record a modest loss for October, following a 0.5% decline in September, but remained close to its record high. Nine of the index’s 11 sectors had gained during the month, while investors had poured about $60 billion into U.S. stock funds, according to EPFR Global data.
Artificial intelligence and technology companies have driven much of the stock market’s rally in recent years. But concerns are growing that profits may not rise quickly enough to justify the enormous expectations reflected in their share prices.
Investors have become more cautious as major technology companies report quarterly results and reveal the scale of their spending on AI infrastructure. The communication services sector, which includes major technology companies, had fallen nearly 14% in October, led by losses in Alphabet and Meta.
Alphabet suffered its worst trading day in years on Thursday, with shares dropping 12.6% after investors reacted to its earnings and substantial AI spending. The Google parent has fallen about 30% from its May peak, putting it in bear-market territory.
Oracle and Meta have also entered bear markets, while Amazon risked joining them after its latest earnings report. Microsoft was the only one of the five major technology companies driving the AI infrastructure expansion whose shares remained above their year-to-date starting level.
Investors are also reassessing their exposure to companies heavily committed to AI. Joe Quinlan, head of market strategy for the Chief Investment Office for Merrill and Bank of America Private Bank, said clients were increasingly considering shifting some investments into other sectors.
Even companies viewed as more cautious in their AI spending have faced pressure. Microsoft reported earnings that broadly exceeded expectations, but its shares edged lower after the company announced plans to raise an additional $25 billion through bond sales.
“The earnings bar is very high,” said Chris Galipeau, an economist at the Franklin Templeton Institute. “We have seen what happens when companies don’t hit that bar.”
Meanwhile, falling Treasury yields have supported sectors that are sensitive to borrowing costs. The yield on the 10-year U.S. Treasury note slipped below 5% this week after reaching 5.3% earlier in October.
Energy stocks have led the broader market’s gains, supported by rising oil prices. Brent crude, the international benchmark, climbed to about $113 a barrel, compared with just over $102 at the end of September and roughly $72 before the war with Iran began in late February.
The S&P 500 energy sector gained more than 11% in October, while utilities and consumer staples rose more than 9%. The Russell 2000 index of smaller companies was also on track to finish the month about 2% higher after a steep decline earlier in the period.
Despite the broader market’s resilience, uncertainty remains over the outlook for inflation, interest rates and the war with Iran. Investors are also watching the U.S. midterm elections scheduled for Tuesday.
Malik Ahmed Khan, a technology analyst at Morningstar, said investors were reallocating some AI-related investments into more defensive sectors while waiting to see how the technology trade develops.
