On Friday, October 30, tech stocks lost more than a trillion dollars of market value. Intel fell 28.6%. And the same question keeps coming up everywhere: is the AI bubble bursting?
What happened on Thursday and Friday
The slide was kicked off by Alphabet, which lost 12.6% on Thursday after its earnings. The next day Intel fell 28.6%, AMD 10.9% and Nvidia 4.2%. As a result, the Nasdaq 100 sits 9.1% below its October 6 record (people start talking about a correction at 10%), and the semiconductor index, the SOX, is down 27% from its June 22 high.
Why now
Big tech will invest around $800 billion this year, mostly in AI, according to the BBC and Fortune. The problem is that the spending is already showing up in the cash.
| Company | Free cash flow |
|---|---|
| Alphabet (Q3) | -$9,065M |
| Meta (Q3) | -$2,120M |
| Amazon (last 12 months) | -$42,400M |
| Microsoft (quarter) | +$18,600M |
On top of that come the IMF’s October 13 warning about the risk of an AI-driven correction and what’s happening in China, where Shanghai’s STAR 50 is down close to 47% from its July high. If the debt angle interests you, read the first crack in AI.
Burst or correction?
It’s still too early to say. Microsoft does generate cash ($18.6 billion in the quarter) and is only 4% below its record. Not the whole sector is moving the same way.
What changes if you trade options
The VIX jumped 12.9% to 19.42, which is exactly its average since 1990. With more fear, implied volatility rises and premiums get more expensive: buyers pay more and sellers collect more. If you want to refresh what implied volatility is, we explain it in this article, and the option chains for each stock are in ProRealTime.
The next test
Nvidia reports on Tuesday, November 17. And remember that this data is from the close on Friday, October 30: the market has kept moving since then.
Sources: Nasdaq and Cboe via Yahoo Finance, Reuters, CNN, NBC, BBC, Fortune, the IMF and company results. Educational content: not investment advice.
