Nasdaq 100 futures continued their downward slide this week, with the index falling to 28,770, down 8.35% from its yearly high and marking its lowest level since August 3. The sell-off has been driven by a sharp decline in major technology stocks, particularly those heavily exposed to artificial intelligence, as investors reassess the sustainability of the AI-driven rally.
AI Trade Unwinds as Earnings Disappoint
The recent earnings season has exposed cracks in the AI trade. Intel's stock plummeted after its PC revenue slumped and supply chain issues intensified, while Amazon missed estimates on both the top and bottom lines. Alphabet also tumbled as its core search and advertising business showed signs of deterioration. These declines have dragged the Nasdaq 100 lower, with the index now trading below its 50-day moving average and a key support level at 28,796.
Investors are increasingly concerned that the massive capital expenditures required for AI expansion are not translating into commensurate revenue growth. Amazon, for instance, now expects to spend $220 billion, leading to negative free cash flow that was worse than analysts anticipated. Similarly, Meta Platforms announced plans to raise over $90 billion, with Nvidia contributing $2 billion, to fund AI initiatives.
Broader Tech Sell-Off
The sell-off is not limited to the biggest names. Other Nasdaq 100 constituents like ServiceNow, Adobe, and Microsoft have all slumped by double digits from their all-time highs. The weakness is spreading across the tech sector, with investors questioning whether the high valuations are justified given the slowing growth and rising costs.
Crypto Stocks Hit by Binance Hack
The Nasdaq 100 also faced pressure from the crypto sector after North Korean hackers breached Binance, draining $6.3 billion in the largest hack in crypto history. Circle and Tether managed to freeze $3 billion of stablecoins, but the rest was taken. The incident has raised concerns about the security of the crypto industry, leading to declines in stocks like Coinbase and Gemini.
Hawkish Federal Reserve Adds Pressure
Adding to the market's woes, the Federal Reserve left interest rates unchanged between 3.75% and 4%, but two officials voted for a hike. Strong third-quarter GDP data has led analysts to expect a rate increase at the next meeting, which could further dampen risk appetite.
Technical Outlook
From a technical perspective, the Nasdaq 100 futures have broken below the crucial support level of 28,796, the lowest swing in September and October, confirming a bearish outlook. The index has also fallen below the lower area of the fixed range volume profile. The next key target is the psychological level of 28,000 points.
As the AI trade unwinds, investors are closely watching whether the sell-off will extend or if valuations have reached attractive levels. The combination of slowing core businesses, accelerating capex, and a hawkish Fed suggests that volatility may persist in the near term.
This article is for informational purposes only and does not constitute financial advice.
