Huo Xing Finance reports that on October 31, according to Bloomberg, the latest earnings reports from tech giants failed to alleviate investor concerns over the return on investment in AI infrastructure. Despite continued growth in cloud computing, the strain on free cash flow from data center construction triggered selling pressure, causing the Nasdaq 100 Index to fall 6.7% for October—the worst monthly performance since March 2025. Among the four major cloud providers, Amazon, Meta, and Alphabet all posted negative free cash flow this quarter, with Amazon’s deficit nearing $35 billion. Microsoft was the exception, reporting positive free cash flow of $18.6 billion and Azure revenue growth exceeding expectations, yet its stock still fell 1.6% on Friday. Alphabet dropped 13% on Thursday, marking its worst single-day performance in history; it posted negative free cash flow for the second consecutive quarter, and core search revenue also disappointed. Search accounted for nearly 56% of the company’s revenue last year, raising concerns that AI expansion could erode its core business. Since Meta released its earnings on October 21 and raised its annual capital expenditure plan, its stock has fallen 12% cumulatively. S&P Global Ratings downgraded its credit rating outlook from stable to negative on Friday, noting it remains unclear when these expenditures will generate revenue exceeding cost growth. Meanwhile, capital spending continues to accelerate: Meta’s future spending commitments have risen to $825 billion, while Alphabet’s future obligations exceed $1 trillion. Concerns have also spread to the software sector: ServiceNow missed quarterly sales guidance, causing its stock to plunge a record 31% on Thursday; Twilio fell 18% on Friday after issuing disappointing guidance; Fortinet lowered its services sales forecast, triggering a sell-off in cybersecurity stocks. Investors fear that products from companies like Anthropic and OpenAI may erode software firms’ pricing power and profit margins. Chris Osmond, Chief Investment Officer at Fifth Third Wealth Advisors, believes investors are increasingly rewarding companies that convert spending into revenue and tangible returns, while punishing those that have yet to achieve such conversion or continue increasing expenditures. Anthony Saglimbene, Chief Market Strategist at Ameriprise, notes that tech giants are transitioning from light-asset, high-cash-flow businesses to heavy-asset models, altering the reliability of cash flows and growth—and thus requiring new valuation approaches. He believes AI is now entering a “prove it” phase, where every earnings report will test the market’s previously high expectations.
Nasdaq 100 drops 6.7% in October, worst monthly performance since March 2025
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Summary
On-chain data shows the Nasdaq 100 fell 6.7% in October, its worst monthly decline since March 2025. Tech earnings failed to alleviate concerns about returns on AI infrastructure. Amazon, Meta, and Alphabet all reported free cash flow deficits, with Alphabet down 13% on Thursday. Microsoft remained positive at $18.6 billion but still lost 1.6%. On-chain analysis reveals mounting pressure as Meta’s spending reaches $825 billion and Alphabet’s exceeds $1 trillion. Software companies such as ServiceNow and Twilio also declined after missing revenue targets. Investors are now favoring companies that convert spending into returns.
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