Amazon shares tumble over 6% in after-hours trading on earnings miss

Alphabet falls 12.3% as tech stocks weaken broadly

Cash flow concerns mount amid surging AI investment

Global investor sentiment cools as profitability questions grow

Amazon shares tumbled in after-hours trading Thursday after the company reported earnings that fell short of market expectations. [Getty Images]
Amazon shares tumbled in after-hours trading Thursday after the company reported earnings that fell short of market expectations. [Getty Images]

Concerns about a bubble in AI investment are emerging again as major US technology companies pour vast sums into the sector while repeatedly falling short of market expectations. Alphabet, the parent company of Google, tumbled more than 12% after its earnings release, and Amazon followed with a drop of more than 6% in after-hours trading on disappointing results. Doubts are growing over whether the massive spending fueling the AI race will translate into real profits.

Amazon reported third-quarter sales of $201.9 billion on Thursday (local time), according to the Financial Times and other international media. That represented a 12% increase from the same period last year but fell short of the market consensus of $202.2 billion.

Net profit came in at $20.7 billion, down from $21.2 billion in the same quarter a year earlier. Earnings per share of $1.89 also missed the market estimate of $1.97. Amazon's share price fell more than 6% in after-hours trading immediately after the announcement.

Investors focused particularly on the deterioration in cash flow driven by AI infrastructure spending. Amazon's free cash flow over the trailing 12 months swung to a deficit of $42.4 billion, a sharp reversal from a surplus of $14.8 billion in the same period last year.

Amazon expects cash capital expenditure to reach approximately $220 billion this year, reflecting the enormous sums it is committing to AI data centers, semiconductors and related infrastructure.

Underlying AI demand, however, remained robust. Amazon Web Services, the company's cloud unit, posted third-quarter sales of $46 billion, up 39% from a year earlier — its highest growth rate in roughly five years.

AI-related businesses are expanding rapidly, but investment is scaling even faster, deepening concerns about whether profitability can keep pace.

Alphabet, the parent company of Google, said it would accelerate AI infrastructure investment this year, with capital expenditure expected to reach as much as $205 billion. [Reuters]
Alphabet, the parent company of Google, said it would accelerate AI infrastructure investment this year, with capital expenditure expected to reach as much as $205 billion. [Reuters]

Alphabet, which reported its results ahead of Amazon, also disappointed the market.

Alphabet's share price fell 12.3% on Thursday (local time). Although third-quarter capital expenditure came in below market expectations, weak performance in its core search advertising business weighed on investor sentiment.

Alphabet has now spent more than it earned for two consecutive quarters. The pace at which its heavy AI infrastructure investment is generating actual cash has fallen short of expectations.

Analysts at Deutsche Bank said the results "raise questions about whether returns on investment can materialize quickly enough to justify the surging capital expenditure."

Microsoft also said it is facing difficulties expanding AI infrastructure. The company is scaling up data center construction to meet demand from major customers including Anthropic and OpenAI, but construction delays kept capital expenditure in the last quarter below initial projections.

Concerns over AI investment have spread to Asian technology companies as well. Samsung Electronics saw its share price fall more than 4% after its semiconductor division posted operating profit that missed market expectations — more than 30% below the peak it reached in June.

Global technology companies are committing hundreds of billions of dollars to data centers and semiconductors to avoid falling behind in the AI race. But as some firms finance those outlays with debt, worries are growing about the prospects for recouping those investments and the resulting financial burden.

Mitul Kotecha, head of Asia macro strategy at Barclays, said risk asset markets such as equities "are reacting very sensitively to related news" and that "the market is becoming more cautious about returns on AI investment."

The disappointment over Big Tech earnings rippled across US financial markets. The Nasdaq 100 fell 1.4% on the New York Stock Exchange, while the S&P 500 slipped 0.3%.

US third-quarter GDP growth came in at an annualized rate of 3.4%, beating market forecasts, but failed to revive investor sentiment. Capital instead flowed into safe-haven US government bonds, pushing the yield on the 10-year Treasury down 0.1 percentage point to 4.94%.


sjy@heraldcorp.com