Don’t blame weak forecasts from Intel (INTC), linked to a prolonged shortage of memory chip supplies, for the new rout of technology stocks.
Blame hyperscalers like Amazon (AMZN), Alphabet (GOOGL), and Meta (META) for failing to properly guide Wall Street on how much they intended to spend this year and next on AI infrastructure. The bills are much bigger than expected, and Wall Street can’t handle them.
This is why you don’t see many heroes saying to buy the dip right now. This is why Friday promises to be a new bloodbath for technology stocks.
Remember, these are the cash flows that will be used to pay off all the debt that hyperscalers are about to take on to support the development of their robust AI infrastructure. The fact that cash flow dries up due to a prolonged spending period is the virus that infects debt and stock markets.
Kudos to Amazon for at least not burying its free cash flow metric, the most important metric for tech right now, at the bottom of its earnings release. That didn’t make it any less difficult to digest, but at least it was easy to find quickly.
Amazon’s free cash flow declined to $42.4 billion over the trailing twelve months, primarily due to a $94.8 billion year-over-year increase in property, plant and equipment purchases. The increase primarily reflects investments in artificial intelligence, Amazon said.
This compares to a free cash flow inflow of $14.8 billion for the trailing twelve months ended September 30 last year.
“We still expect cash investments of approximately $220 billion for 2026, the majority for AWS, and expect to spend significantly more in 2027,” Amazon CEO Andy Jassy said during its earnings call.
Amazon’s stock is down 7% today in premarket trading.
243.79 -10.81 (-4.25%)
Closing: October 29 at 4:00:01 p.m. EDT
226.20 -5:59 p.m. (-7.22%)
Wednesday evening, Google job Free cash flow of negative $9.1 billion in the quarter, compared to Wall Street’s estimate of negative $3.5 billion.
On Thursday, more than $500 billion in market value was wiped from Google.
Meta dropped a bomb its third quarter results last week, posting negative free cash flow for the first time since 2012. SpaceX (SPCX) burned through approximately $9.9 billion in free cash flow during the quarter.
Both stocks continued to sell off after earnings.
Hyperscalers’ free cash flow will likely remain negative, points out EvercoreISI strategist Julian Emanuel. The hyperscaler cohort of Meta, Amazon, Google, Microsoft, Oracle (ORCL) and SpaceX (SPCX) is now approaching the negative $200 billion expected for next year, according to Emanuel’s research.
This is what the market is integrating today. Painful, yes.
Brian Sozzi is the editor-in-chief of Yahoo Finance, host of the Sozzi unleashed morning show, the ‘Powerful actors with Brian Sozzi podcast and member of the Yahoo Finance editorial leadership team.
Gn bussni
