Nasdaq 100 heads for $2 trillion October wipeout as AI spending fears deepen

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Nasdaq 100 October AI losses

Highlights

More than $2 trillion in market value is set to be erased from the Nasdaq 100 in October due to heightened scrutiny of AI investment returns.
Meta's record $97.5 billion fund raise and Microsoft's reported $25 billion bond sale highlight growing reliance on debt to finance AI expansion, increasing dilution and credit market risks.
Morgan Stanley forecasts over $1 trillion in AI infrastructure capital spending in 2025, with J.P. Morgan projecting global AI capex to reach $5.5 trillion by 2030 and $900 billion in 2026.

Big Tech earnings sharpen focus on AI costs

As reported by Reuters, more than $2 trillion in market value is set to be erased from the Nasdaq 100 this month as recent earnings from major technology companies intensify scrutiny of the returns from AI investment. The selloff comes as hyperscalers including Meta Platforms, Alphabet and Amazon.com raise spending forecasts further to expand AI infrastructure.

The prospect of even larger AI outlays is unsettling investors, especially as higher borrowing costs threaten to make debt-funded investment more expensive and more difficult to defend. Alphabet posted its biggest one-day percentage drop on record on Thursday after weak results in its core search advertising business and a sharp acceleration in cash burn.

Meta's plan for a record $97.5 billion fund raise is also adding to concerns about shareholder dilution and whether mounting AI spending could push other Big Tech groups to rely more heavily on capital markets. Apple is set to report next week, while Nvidia, widely seen as an AI bellwether, is due to report in mid-November.

Debt funding risk spreads beyond equities

Some companies are offering a more encouraging signal, with Microsoft and SpaceX standing apart from the broader gloom after results suggest AI spending is beginning to pay off. John Bilton, global head of strategic research at Multi-Asset Solutions, said aggregate growth is still positive and pointed to sustained demand for data.

Microsoft is reportedly planning to raise about $25 billion through its first U.S. investment-grade bond sale in more than nine years. Meta, Amazon and Alphabet have already issued hundreds of billions of dollars in bonds over the past four years, reinforcing investor concern about growing dependence on debt to finance AI expansion.

That concern is now spreading from stocks to credit markets, where investors are increasingly pricing in the risk that higher financing costs and slower returns on AI spending could pressure companies once seen as relatively insulated from macroeconomic strains. Morgan Stanley forecasts overall capital spending on AI infrastructure will surpass $1 trillion next year, while J.P. Morgan expects global AI capex to reach $5.5 trillion by 2030 and sees $900 billion being spent in 2026 alone.

Revenue across the Magnificent Seven has remained strong since ChatGPT launched in 2022, helping explain why investors were initially willing to support the spending despite uncertainty over when returns would materialize. Amazon Web Services continues to accelerate, Meta has delivered better-than-expected revenue growth with an upbeat outlook, and Microsoft has also forecast strong cloud growth, but the scale of planned spending is keeping pressure on valuations.

Our earlier article on the rise of U.S. AI data centers explained that the infrastructure boom is running into higher financing costs, construction delays and power constraints that could test investor confidence. We noted that only a portion of planned projects look realistic, while cost overruns and harder access to capital are forcing some developers to seek additional equity or debt. This backdrop helps explain why markets are now scrutinizing whether massive AI spending can translate into sustainable returns.

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