Analysts warn AI spending drags down tech stock cash flow, US stock pullback may not be over
Cailianshe reports that last week the Nasdaq Composite fell about 2% for the full week and 5.3% cumulatively in October, its worst monthly performance since March 2025, while the S&P 500 technology sector fell 4.24% in a single day last Friday. Truist chief market strategist Keith Lerner noted that since 2023 the S&P 500 technology sector has seen six pullbacks of 10% or more, four of which ranged from 14% to 27%, and he believes this time will be no exception. Alphabet's third-quarter free cash flow swung from about $24.461 billion in the year-earlier period to negative $9.065 billion; Amazon likewise posted negative free cash flow, and Meta turned negative for the first time since 2012, but all of these companies said they will maintain or even increase AI spending.
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The article summarizes several analysts' judgments on the tech stock pullback and lists specific data on negative free cash flow at Alphabet, Amazon, and Meta, helping readers understand the tension between AI spending and market expectations.
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Cailianshe Huang Junzhi, Editor Xu Xiang 2026-11-02 09:49
① Last week, U.S. tech stocks fell broadly, with the Nasdaq Composite Index down about 2% for the week and 5.3% for October, its worst monthly performance since March 2025; ② Analysts pointed out that "the problem is no longer just strong AI demand. Rather, Wall Street is increasingly demanding evidence that massive investment can translate into lasting profits and cash flow."
Cailianshe, November 2 (Editor Huang Junzhi) — You thought last week's tech stock market was bleak enough? Some analysts are warning that if history is any guide, the tech industry's suffering may have only just begun!
Last week, U.S. tech stocks fell broadly, with the Nasdaq Composite Index down about 2% for the week and 5.3% for October, its worst monthly performance since March 2025. The S&P 500 technology sector fell 4.24% on Friday alone, the worst performer among the eleven major sectors that day.
Keith Lerner, Chief Investment Officer and Chief Market Strategist at Truist Advisory Services, noted that since 2023, the S&P 500 technology sector has seen six pullbacks of 10% or more. Of those six declines, four ranged between 14% and 27%. He believes this pullback will be no exception.
He further stated: "The problem is no longer just strong AI demand. Rather, Wall Street is increasingly demanding evidence that massive investment can translate into lasting profits and cash flow."
On Friday, the AI sector was hit hard, with more than $1 trillion in market value wiped out, as investors worried that large tech companies' heavy spending on AI would worsen their cash flow positions. Negative news about cash flow also emerged repeatedly during this quarter's earnings season.
Cloud services giant Google's parent company Alphabet reported last week that its third-quarter free cash flow swung from about $24.461 billion in the year-earlier period to negative $9.065 billion. Subsequently, Amazon's earnings report released Thursday evening also showed negative free cash flow. A week earlier, Meta disclosed negative free cash flow for the first time since 2012.
However, none of these top tech companies said they would slow their AI investment; on the contrary, they all said they would maintain or even increase their spending.
Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said the market is "much more sensitive than usual," and that investors would rather sell first and ask questions later than get stuck and keep taking losses.
Well-known tech analyst Dan Ives, a partner at Yorkville Ives, said, "The disruptive impact of AI has been on full display during tech companies' earnings season, and there is still much uncertainty about which companies and industries will be the disruptors and which will be disrupted."
He further pointed out, "Now is not the time to panic-sell all tech stocks and hide in a bunker... Despite last week's grim situation, the underlying signs of enterprise AI buildout are actually more solid than a week ago... thanks to what we heard from hyperscale data center operators and the results from Meta and SpaceX."
"That said, tech companies raising capital through the bond market, equity offerings, ATM programs and other means also put further pressure on the sector, exacerbating last week's market turmoil," he added.
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Cailianshe Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investors who act on it do so at their own risk.
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[ETF Playbook] Leading companies' earnings are impressive, and top-tier enterprises are entering a critical period of "volume expansion + overseas expansion." Institutions say they are bullish on the sector's performance amid a volatile market; equity ETFs continued to see net subscription and redemption inflows exceeding 100 billion last week
① Leading companies' earnings are impressive, and top-tier enterprises are entering a critical period of "volume expansion + overseas expansion." Institutions say they are bullish on the sector's performance amid a volatile market; ② equity ETFs continued to see net subscription and redemption inflows exceeding 100 billion last week; ③ Institutions: Looking ahead to November, against the backdrop of strengthened external disturbances and persistently high oil prices, this style is expected to remain dominant.
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