Halloween has been and gone. But the spectre of an AI bubble haunting financial markets isn’t going anywhere. While Nvidia (NVDA) became the world’s first $5 trillion company, Meta (META) suffered its worst single-day stock-price crash in three years on the back of a disastrous earnings report, and Amazon (AMZN) announced 14,000 job cuts.
Although the Facebook parent company’s huge miss – it reported third-quarter earnings of just $1.05 per share versus analyst expectations of $6.72 per share – was mainly down to a $15.93 billion one-off tax charge, the deeper concern for investors was Meta’s aggressive AI spending forecast. Its guidance for 2025 capital expenditure was almost double last year’s, at $$70-72 billion.
Microsoft, too, sparked jitters by announcing a 74% increases in its capital spend. The company’s share price fell following the release of its fiscal first quarter figures, despite topping expectations.
There was at least something for markets to cheer, as Donald Trump and Chinese president Xi Jinping struck a one-year trade truce at the end of high stakes negotiations in South Korea. China agreed to postpone export controls on rare earth exports that had struck fear into the hearts of companies from carmakers to electronic device manufacturers.
Trump cut the levy on imports of fentanyl-based products and said Beijing had pledged to buy “massive amounts” of American soyabeans and agricultural products.
Meanwhile, the Federal Reserve cut interest rates by a quarter of a percentage point for the second meeting in a row, even as the government shutdown left policymakers without key data to guide them. Fed chair Jerome Powell indicated a December rate cut is “far from” a forgone conclusion.
Let’s take a look at some of the headlines making waves in recent days.
WASHINGTON, DC – OCTOBER 28: Nvidia CEO Jensen Huang delivers the keynote address at the Nvidia GTC (GPU Technology Conference). · Anna Moneymaker via Getty Images
Amazon and Alphabet shine in mixed bag of Mag 7 results
Six of the “Magnificent 7” tech giants have reported their quarterly earnings and the results have received a mixed response from investors, with lingering concerns about an AI bubble in markets.
Following the release of Meta (META) and Microsoft’s (MSFT) earnings this last week, AJ Bell (AJB.L) investment director Russ Mould said the results “highlight the business models of the big technology firms are becoming more capital-intensive, as they build out their AI capabilities”.
“That’s all well and good, if AI delivers the revenue streams the big tech CEOs are betting on,” he said. “And of course, if the pie is big enough for everyone to get a satisfactory slice. However if that proves not to be the case, either at an aggregate sector or individual company level, the effect on share prices could be brutal.”
Story Continues