Stocks Plunge Again as AI Trade Unravels. Nasdaq Sees Worst Day Since June.

Stocks plunged again on Friday as traders continue to drop the AI trade amid fears over spending levels.

The Dow Jones Industrial Average fell 1.09%, while the S&P 500 did so 1.82%. The tech-heavy Nasdaq Composite underperformed, falling 2.86% and recording its worst session since June.

Amazon dropped after reporting negative free cash flow of $42.4 billion over the preceding 12 months. Its latest results also indicated further increases in AI spending. "Although Amazon and Intel have different issues, both raise the same question; at what stage does a company have to increase its investment to such a degree that it becomes financially detrimental if there is little to no return?"

Mark Vena, CEO and principal analyst at SmartTech Research, said investors are becoming less willing to accept spending plans without specific financial milestones. "My view is that investors and overall market sentiment are losing patience with AI spending that comes with an impressive price tag and a vague payback date. AI can transform an industry and still disappoint shareholders if the economics don't work."

Intel underperformed, plunging 29% and recording its worst day since the 1970s after issuing weaker-than-expected guidance.

The chipmaker's third-quarter results showed revenue increased 21% to $16.5 billion, while adjusted earnings reached 52 cents per share, more than double the 23 cents recorded a year earlier.

However, Intel projected fourth-quarter revenue of $15 billion to $16 billion and adjusted earnings of 25 cents per share. The outlook disappointed investors, despite the stronger third-quarter performance.

Intel's Client Computing and Physical AI business, which includes processors for personal computers, reported a 5% revenue decline to $8.1 billion. By contrast, its Data Center and AI division recorded 78% growth, bringing quarterly revenue to $7.3 billion.

Chief Financial Officer David Zinsner said Intel expected the PC market slowdown to continue at least through the first half of 2027. The company is also investing in additional production capacity to address strong demand for its Xeon server processors.

Vena now expects a more selective market, with investors favoring companies that convert adoption into profitable revenue. "I absolutely expect the AI trade to become more selective, with investors rewarding companies that turn adoption into profitable revenue," he said. "From my point of view, having 'AI' (that magic word) in the investor presentation will carry less weight than showing customers who keep paying after the pilot ends."

"Putting all of these factors aside, this should be a warning to every management team that assumes investors will tolerate unlimited spending because the opportunity is enormous," Vena added.