AI stocks sell off as Meta raises spending outlook, Nasdaq drops 2.6%

Meta's spending outlook sets off the sell-off

Meta reported strong third-quarter revenue and profit growth on 21 October, and its shares rose more than 6.5% in after-hours trading that day. The gain did not last. Regulatory filings showed future spending commitments rising from $700 billion to $850 billion, alongside negative free cash flow in the third quarter. Meta's stock closed down 6.98% on 22 October, a loss that wiped out $124 billion of market value. The Nasdaq fell 694 points that same day, a 2.6% decline and its largest daily drop since June.

Chipmakers and AI names fall hardest

The Philadelphia Semiconductor Index lost 6.72% and sat more than 26% below its all-time high of 22 June. TSMC's American depositary receipts fell 4.5% over the same stretch. Meta was down 9.4% for the week, while AI construction and power names also slid, with Comfort Systems down 19.3%, Quanta down 13.5%, GE Vernova down 11.5% and Bloom Energy down 12.7%. Several of these companies posted strong third-quarter figures, including Comfort Systems, whose order backlogs nearly doubled from a year earlier. Western Digital reported earnings per share up 161% year on year, yet its shares slipped 3%.

Asian markets and oil prices

On 23 October the sell-off spread to Asian markets. South Korea's Kospi closed up 0.3% after recovering ground during the session, while Japan's Nikkei lost 0.34%. Brent crude rose to $115.13 a barrel and WTI to $101.54, raising concerns about corporate costs, inflation and the valuations of AI stocks. Nvidia chief executive Jensen Huang said the AI sector lacks the capital needed to support the growth of Neoclouds, the newer cloud service providers. The Economist reported that Brent breached $114 for the first time since May, and that European and Asian stock markets steadied after the American tech sell-off, though the prospect of more fighting in the Middle East had also shaken confidence.

Doubts over the durability of the AI trade

Jon Gray, president of Blackstone, ruled out the AI boom as a bubble and described demand as growing almost parabolically. Axios estimated, on a back-of-the-envelope basis using the tech sector plus Meta, Amazon and Alphabet as a proxy, that AI-related shares make up more than 50% of S&P 500 market capitalization. Its reporting said the muted reaction to strong earnings points to growing investor doubts about the boom's durability. A comparable crisis of confidence came with the DeepSeek episode in early 2025. Global credit markets were also flashing their biggest warning signal in more than a year on 23 October.

What comes next

On 23 October, US stock markets opened mixed, with the Nasdaq down 0.09%, the Philadelphia Semiconductor Index up 0.44% and TSMC's ADR up 1.37%. Alphabet, Microsoft and Amazon are due to publish quarterly results in the week of 26 October. Those reports will be the next test of whether investors keep rewarding AI spending.