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Major technology stocks faced a sharp correction Thursday after Alphabet Inc. stunned Wall Street with a massive capital expenditure forecast, triggering a selloff that dragged the Nasdaq down 1.4% and sent ripples through the cryptocurrency and semiconductor markets. While cloud computing growth remains robust, investor anxiety over skyrocketing AI infrastructure costs and supply chain constraints has temporarily overshadowed strong fundamental earnings.
Key Points
- Alphabet (Google) revealed a fiscal year capital expenditure forecast of $185 billion, significantly exceeding the $120 billion consensus.
- Qualcomm shares fell nearly 8% as memory supply shortages constrained its handset business outlook, despite record automotive revenue.
- Arm Holdings reported record revenue of $1.24 billion, driven by a data center business that has more than doubled year-over-year.
- Bitcoin dropped below the $68,000 mark for the first time since late 2024, signaling a broader "risk-off" sentiment across asset classes.
- Software stocks have entered correction territory, down 15% this week, with oversold levels hitting historic highs.
Alphabet's $185 Billion Capex Shock
The focal point of the market's volatility was Alphabet’s disclosure of a projected $185 billion in capital expenditures for the fiscal year. The figure represents a dramatic increase from the $120 billion anticipated by analysts, signaling an aggressive, capital-intensive push to build out AI infrastructure.
Despite the sticker shock regarding spending, Alphabet’s core operations showed resilience. Google Cloud revenue grew 48%, outpacing Microsoft’s Azure growth of roughly 39%. However, the market punished the stock, sending it down nearly 5% as investors grappled with the short-term impact on free cash flow.
"The issue for investors is really just the collapse in free cash flow we have grown accustomed to. These companies used to return so much free cash flow to shareholders and now it's being spent for investment. It implies the investor gets put to the side for a little bit."
Market analysts suggest that while the spending is justified to support nearly 50% cloud growth, valuations are being recalibrated to account for this prolonged investment cycle.
Semiconductor Divergence: Arm vs. Qualcomm
The chip sector presented a split narrative, highlighting how different supply chain dynamics are affecting hardware manufacturers.
Qualcomm Constraints
Qualcomm stock dropped approximately 8%, tracking for its worst performance since the previous summer. While the company issued a revenue forecast of $11 billion—slightly ahead of consensus—CEO Cristiano Amon cited memory supply shortages as a critical bottleneck impacting the handset market.
"The industry is defined by the availability of memory that will be available for consumer electronics. It creates a sudden change in how OEMs look at their build plan. They say 'I have this size of the market,' not based on demand, but the memory I can get." — Cristiano Amon, CEO of Qualcomm
Despite these headwinds, Qualcomm reported a record quarter in its automotive division, which exceeded $1 billion in revenue for the second consecutive quarter, driven by partnerships with major automakers like Volkswagen.
Arm's Data Center Boom
Conversely, Arm Holdings delivered what CEO Rene Haas described as an "amazing" quarter, with record revenue of $1.24 billion and royalty revenue hitting nearly $740 million. Crucially, Arm remains insulated from the memory shortages affecting Qualcomm.
Arm’s data center business is now growing at a rate exceeding 100% year-over-year. Haas noted that Arm CPUs are now present in over 50% of hyperscaler servers, with increasing core counts driving higher royalty rates.
"The memory situation is not really impacting Arm directly... Our data center business is increasingly growing for us and we think in a few years it will be our largest business." — Rene Haas, CEO of Arm Holdings
Broad Market Fallout: Crypto and Software
The negative sentiment in equities extended to the cryptocurrency markets, with Bitcoin falling below $68,000—its lowest level since November 2024. The asset is down approximately 45% from its October highs. Analysts point to a lack of fundamental drivers and a rotation out of "digital gold" as traditional gold and silver prices rise.
Simultaneously, the software sector is facing a historic rout. Software stocks are down 29% from their all-time highs in September, with technical indicators showing the sector is the most oversold it has ever been relative to the S&P 500. This pressure is bleeding into credit markets, with nearly $18 billion in software-related loans pushed into distressed territory over the last four weeks.
Social media also felt the pinch, with Snap Inc. shares falling over 8%. The company reported a 9% decline in daily active users in the United States, raising concerns about its ability to retain younger audiences amid fierce competition.
What to Watch Next
All eyes now turn to Amazon, which reports earnings after the bell. With Amazon stock already down 4% in sympathy with Alphabet, the market is bracing to see if Amazon will follow Google's lead with a similarly aggressive capital expenditure forecast for 2026. Investors are currently anticipating approximately $125 billion in spend from Amazon; any deviation from this figure could trigger further volatility in the tech sector.
