The Nasdaq Composite tumbled as investors pulled capital out of artificial intelligence infrastructure plays and pivoted toward defensive market sectors.
Nasdaq Drops 3.7% as Investors Exit Artificial Intelligence Stocks
Friday marked the final trading day of October, capping a volatile month for the artificial intelligence trade. The tech-heavy Nasdaq sat roughly 9% below its recent high following the sell-off. Meanwhile, the blue-chip Dow Jones Industrial Average outperformed the broader market, dropping 741 points or 1.4%, supported by gains in defensive sectors. The S&P 500 slid 2.4% as selling pressure intensified in afternoon trading ahead of month-end positioning and upcoming midterm elections.
The tech sell-off extended weakness that began earlier in the week. According to RealMoney Pro, the Nasdaq suffered its worst day since June on the preceding Thursday following earnings reports from Meta Platforms and Tesla, which amplified existing market anxieties surrounding capital spending and profitability.
Earnings Misses and Negative Free Cash Flow Spark Tech Sell-Off
Disappointing quarterly reports from major technology firms catalyzed the broader market retreat. Amazon shares dropped 2% after the e-commerce giant reported third-quarter revenue and earnings that missed Wall Street expectations. Amazon posted negative free cash flow of $42.4 billion while maintaining its full-year 2026 capital expenditures forecast at $220 billion.
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Alphabet also faced intense selling pressure, posting its worst single-day drop on record earlier in the week after reporting a third-quarter revenue and earnings miss alongside negative free cash flow of $9.07 billion. Semiconductor manufacturer Intel slumped 29% after issuing a weak current-quarter outlook due to a personal computer market slowdown. Revenue within Intel’s client computing and physical artificial intelligence group fell 5% year-over-year to $8.1 billion.
Chipmakers experienced widespread losses. Advanced Micro Devices tumbled 11%, while Nvidia and Broadcom dropped 4% and 5%, respectively. SanDisk shares fell 12% despite beating fiscal first-quarter estimates, even as the data storage firm announced an eight-for-one forward stock split.
Market Rotation Benefits Defensive Sectors and Bonds
As capital rotated away from mega-cap growth and artificial intelligence equities, defensive sectors absorbed the inflows. Consumer staples and healthcare issues lifted the Dow, with Walmart and Coca-Cola rising nearly 2% each, and Procter & Gamble climbing over 1%. Dow components Merck and Amgen each added approximately 2%.
The tone has changed a bit, and whether that changes the sustainability of the rotation is still yet to be determined,
said Keith Buchanan, senior portfolio manager at Globalt, describing the environment as a scrutinizing and discerning market. Last year was hope. This year is: At the end of day, how does this all work in real world terms, like how to finance [it] and who gets the economics. Those questions are much more difficult to answer.
RealMoney Pro noted that capital exiting artificial intelligence names migrated not only into defensive equities but also into the bond market. Concurrently, Investor’s Business Daily reduced its suggested market exposure to a range of 20% to 40% in response to the high-volume distribution day.
Neocloud Infrastructure Debt and Credit Ratings Face New Scrutiny
Financial Times reported that Blackstone informed investors that Anthropic may not secure an investment-grade credit rating following its debut, cooling momentum initially sparked by the startup’s S-1 filing.
Neocloud providers experienced sharp drawdowns amid mounting bond yields. CoreWeave shares plummeted more than 37% in October, while Nebius headed toward a 33% monthly loss. Exchange-traded funds tracking the sector also retreated, with the Roundhill Memory ETF falling 20% and the iShares A.I. Innovation and Tech Active ETF sliding 17% over the course of the month.
Frequently Asked Questions About the Tech Sector Correction
What specific stock market level would place the Nasdaq Composite into an official correction?
Based on the market close on October 22, the Nasdaq would need to drop an additional 4.1% below 24,950 to enter official correction territory, defined as a decline of at least 10% from recent highs, according to data from The Motley Fool.
How much capital spending is projected for Meta Platforms, and how does it compare to product revenue?
RealMoney Pro reported that analysts expect Meta Platforms to reach nearly $200 billion in capital spending next year. While its Muse AI agent surpassed 10 million downloads in the U.S. and Canada in over a month, it remains far from profitable enough to offset infrastructure outlays, with third-quarter free cash flow dropping to negative $2.1 billion and long-term debt climbing to $80.9 billion.
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