Tech stocks slide as legacy business slowdowns offset AI growth
Investors penalized Amazon, Intel, and Google after earnings showed that surging AI revenues are being subsidized by weakening legacy operations. The market is increasingly viewing the heavy capital expenditure required for AI infrastructure as a threat to financial sustainability.
Amazon reported 39% annualized growth for AWS, its highest in five years, but overall revenue growth of 12% and net income of $20.7 billion missed forecasts, causing the stock to drop 6% in after-hours trading. The company is cash flow negative by $42.4 billion over the past 12 months. Intel’s data center segment grew 78%, but overall revenue growth of 21% and a forecasted margin decline led to a 23% stock crash, driven in part by a $1.9 billion operating loss in its foundry division. Google lost half a trillion dollars in market cap with a 12% drawdown. The market is interpreting these results as an AI bubble burst, despite AI-related revenues surging, because legacy businesses are subsidizing AI build-outs. Amazon CEO Andy Jassy forecast AWS could grow north of 40% in 2027 and 2028, becoming a trillion-dollar business in 5 to 10 years. Analyst Andreas Steno-Larsen described a fierce battle between capital market investors and tech executives over spending, noting that major tech firms are not budging on their spending plans despite market disapproval.