Semiconductor stocks came under pressure in premarket trading on Thursday after Alphabet's latest earnings report raised fresh doubts about the sustainability of massive AI infrastructure spending. Nvidia slipped 1%, AMD fell 3.3%, and Intel lost 3.6%, while Nasdaq 100 futures declined 1.22%.
Alphabet's shares plunged more than 10% after the company reported negative quarterly free cash flow of $9.07 billion, despite Google Cloud revenue doubling to $30.71 billion. The tech giant's capital expenditure reached $51.36 billion in the third quarter as it raced to expand data centers and AI computing capacity. Revenue rose 25% to $127.6 billion but missed expectations, and weaker-than-forecast search advertising added to the pressure.
The market's reaction underscores a growing concern among investors: can the biggest customers of chipmakers continue spending at record levels without sacrificing profitability? Alphabet's negative free cash flow, partly reflecting infrastructure spending, inventory purchases, and a European Commission fine, highlights the financial strain of the AI buildout.
Microsoft, by contrast, provided a more reassuring picture. Its shares gained about 3.5% before the opening bell after the company reported stronger cash generation and encouraging cloud guidance. “Alphabet and Microsoft were night and day,” Melissa Otto, head of research at S&P Global Visible Alpha, told Reuters.
The pressure on chipmakers began before Alphabet's report. Sherlund Partners calculated that its Silicon & Semis grouping lost 11.9% between October 9 and 23, even though analysts' 2027 earnings forecasts barely changed. Rick Sherlund argued in an October 25 research note that investors were increasingly concerned about debt-funded data centers and uncertain returns.
Morgan Stanley strategist Mike Wilson has warned that semiconductor shares could fall another 10% to 15% before finding support, reflecting worries about the cost and availability of financing. The Federal Reserve's decision to keep interest rates unchanged on Wednesday offered limited relief, with traders pricing in an 81% chance of a December increase.
Intel's quarterly results after Thursday's closing bell will provide the next test. Analysts expect revenue of about $16.5 billion and adjusted earnings of $0.40 a share. Wedbush expects Intel to meet or exceed forecasts but says fourth-quarter guidance, margins, and 2027 investment plans will matter more. Intel needs to demonstrate that its manufacturing recovery can withstand weak personal-computer demand.
For AMD, which reports on November 3, investors will look for evidence that data-center chip sales can keep growing without compromising profitability. Nvidia's next earnings release on November 17 will offer another read on demand from large cloud customers. Amazon's results on Thursday evening could also shift sentiment, particularly if its spending plans suggest that the AI infrastructure race is still accelerating.
This article is for informational purposes only and does not constitute financial advice.
