The Nasdaq 100 has entered correction territory for the third time this year, as tech stocks face broad selling pressure. Persistent U.S. inflation, oil prices surpassing $100, and growing skepticism over AI investment returns are prompting Wall Street to reassess what was once seen as an unstoppable tech boom.
On October 30, U.S. stocks experienced a "Black Friday," with the artificial intelligence sector suffering the heaviest selling pressure.
Intel plunged more than 30% during trading, NVIDIA fell over 5%, and AMD dropped more than 12%. Chip stocks, cloud computing, server manufacturers, and even cryptocurrency-related equities were almost universally hit. The Nasdaq 100 Index slid as much as 4.4% during trading and has retraced approximately 10% from its October 6 high, officially entering a technical correction. According to Reuters estimates, the index has lost over $2 trillion in market value so far this October.
Major tech earnings reports collectively missed expectations
The direct trigger for this round of tech stock sell-off was the earnings reports from major tech companies.
On October 29, Alphabet experienced its largest single-day stock drop on record due to weaker-than-expected performance in its search advertising business and ongoing cash outflows from AI investments. (Read more: $600 billion wiped out in a day! Is Google Search losing its edge?) Subsequently, earnings reports from Amazon and Intel further undermined market confidence.
Amazon reported a significant net cash outflow in the third quarter and expects to increase capital expenditures further next year. Intel not only provided revenue guidance below expectations but also warned that achieving positive cash flow this year will be difficult.
These financial reports reveal a common issue: AI investment levels continue to set new records, but commercial returns have not yet caught up.
According to Reuters, JPMorgan expects global AI capital expenditures to reach $900 billion by 2026; Morgan Stanley forecasts that global AI infrastructure investment will exceed $1 trillion next year. Such massive spending is reshaping the financial structures of tech giants. Meta plans to raise $97.5 billion in financing, while Microsoft aims to raise approximately $25 billion through the bond market. As more companies rely on external financing, debt costs and cash flow are becoming central concerns for investors.
Cetera's Chief Investment Officer, Gene Goldman, noted that massive capital expenditures and ongoing cash consumption are causing the market to question whether AI investments can generate returns sufficient to justify these costs.
In the past, the market was willing to pay high valuations for AI’s long-term growth; today, investors are no longer satisfied with growth stories and are demanding profitability and cash flow from companies.
Inflation is heating up again, making it difficult for the Federal Reserve to rescue the market.
As tech stocks face valuation pressure, the macroeconomic environment has also become less favorable.
Data released on October 29 showed that the U.S. PCE price index rose 3.6% year-over-year in September, up from 3.4% in August; core PCE increased 3.1% year-over-year, still significantly above the Federal Reserve’s 2% target. Meanwhile, U.S. third-quarter GDP grew at an annualized rate of 3.4%, indicating continued economic resilience.
Strong growth and persistently high inflation mean the Fed has little reason to cut rates quickly. On October 28, the Fed held its policy rate steady at 3.75% to 4.00% and retained the possibility of further rate hikes.
The situation in the Middle East has further complicated inflation prospects. On October 30, Brent crude oil futures briefly neared $118 per barrel due to risks of energy supply disruptions. High oil prices increase transportation and production costs, eroding consumer purchasing power; high interest rates raise corporate financing costs, particularly disadvantaging AI infrastructure companies that require continuous massive capital investment.
Although safe-haven funds flowed into U.S. Treasuries on Friday, pushing yields lower, the 10-year U.S. Treasury yield remains at a high level of around 5%.
Next week's U.S. midterm elections have also added short-term uncertainty, as markets begin to discuss the possibility of the Democratic Party winning both chambers of Congress and its policy implications.
This is also a key distinction between this round of correction and previous tech stock pullbacks: the market is not only facing overvaluation, but also rising financing costs, persistent inflation, and policy uncertainty stemming from the midterm elections—all pressures compounding together.
Structural bear market?
Traditionally, a 10% decline from a peak is considered a technical correction, while a 20% drop is typically defined as a technical bear market.
According to this standard, the major U.S. stock indices have not yet entered a bear market across the board. However, individual stocks have shown even weaker performance than the indices suggest.
RIA Advisors' report, "A Stealth Bear Market Hides Beneath A Flat S&P 500," released on October 29, notes that since June 1, the S&P 500 has risen only about 1% cumulatively, but many of its components have undergone significant corrections.
According to the report, approximately 58% of the S&P 500 components have declined at least 20% from their respective highs this year. Of these, 182 stocks experienced such a decline within the five months since June, while another 108 stocks had already met this threshold earlier.
Source: RIA Advisors, October 29
In other words, while the S&P 500 appears stable, nearly 60% of its components experienced a bear-market-level drawdown this year—this is what’s known as a “stealth bear market.”
Behind it is continuous sector rotation. Since early June, the S&P 500 Growth ETF (IVW) has declined 2.6%, while the Value ETF (IVE) has risen 5.4%. Capital has been shifting repeatedly among technology, energy, and defensive sectors, with gains and losses across sectors offsetting each other and masking underlying market weakness.
Data source: RIA Advisors, October 29
RIA analysts believe that this rotation is not necessarily all bad. Gradual adjustments among individual stocks help absorb overvalued valuations and reduce the pressure of a sudden, broad market decline. However, what truly warrants caution is when both growth and value stocks fall simultaneously. If capital ceases to rotate between sectors and instead exits the stock market en masse, indices could face even greater pressure.
Friday's movement confirmed this: Reuters data showed that the number of declining stocks on the Nasdaq was about 3.1 times the number of advancing stocks, indicating that the selling pressure is broadening.
After a sharp decline, is it a good time to buy the dip?
After the pullback, the valuation appeal of some technology stocks has begun to rise, but Wall Street remains sharply divided on the timing of buying opportunities.
RIA Advisors believes it may be prudent to moderately reduce holdings in previously strong value stocks while gradually increasing positions in high-quality tech stocks that have been sold off, but a complete style shift is not recommended. Their top picks are platform companies like Alphabet and Meta, which have mature businesses and strong cash flows, followed by semiconductor companies such as NVIDIA and Broadcom, which possess technological advantages and pricing power.
Morgan Stanley, however, is more cautious. Analysts believe this downturn is not yet over, with the S&P 500 potentially falling another 6% to 7.5% to test the 7,100–7,200 range, though the year-end target remains at 8,000. In other words, there’s no rush to increase positions—wait until AI-related anxieties peak and risks are fully priced in.
Bank of America offers another perspective: if you remain bullish on AI, tech bonds may be more stable than tech stocks, as the free cash flow of hyperscale companies is deteriorating while debt issuance is surging. More importantly, maintain some liquidity to wait for further signals from the macro environment and market trends.
Author: Seed.eth
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