Major drop in US tech shares due to fears over rising Artificial Intelligence costs

Amid concerns over the rising costs incurred for the infrastructural development of Artificial Intelligence (AI), a continuous decline is being witnessed in the US stock market. The tech-focused Nasdaq stock exchange opened at its lowest level in the last two months on Friday, registering a 2.5% decline. This decline also includes other tech shares such as Reddit and Roblox.

According to a BBC News report, chipmaker Intel's shares saw a decline of up to 30% in early trading on Friday. Intel has warned that the computer market is weakening, although the company plans to increase spending in the AI sector. Due to Intel's report, panic has spread among investors, and the company's value is on the verge of dropping by more than $130 billion. According to Intel's Finance Chief David Zinsner, the company does not expect cash inflows to exceed expenditures this year, and revenue for the fourth quarter is estimated to be lower than expected. He further added that the slump in the PC market is likely to continue through the first half of next year. The company increased its equipment investments in the third quarter, and this is expected to be even more significant over the next three months.

Google's parent company Alphabet's value dropped by more than $500 billion on Thursday, as the company's own AI summaries are impacting its core search advertising revenue. In early trading on Friday, Alphabet's shares saw a further 1% decline. Amazon's shares also saw a decline of up to 6%, though they recovered later. Amazon stated that the company is spending more cash than it is earning, and this spending has increased sixfold over the last three months. On Friday, Amazon's shares saw a 1.6% decline.

Social media platform Reddit's shares fell by 26% after the company reported daily user figures to be weaker than expected. At the same time, it also warned that referral traffic is taking a hit due to Google's growing AI search. Online game platform Roblox's shares dropped by nearly 20% as the number of its daily active users declined. According to a Times of India report, a market value of more than $2 trillion is at risk in the Nasdaq 100. Analysts are raising questions about the returns on the heavy investments being made in AI. Chris Low of FHN Financial, speaking to Reuters, stated that companies are moving forward aggressively for the development of AI, and they are facing difficulties in this process, which suggests that the entire sector could slow down. However, the positive results of Microsoft and SpaceX provide a ray of hope in the market.