Companies Spend Hundreds of Billions on AI, Yet Profits Don't Grow

The results of major tech companies for the week did not reassure investors. The core business of American tech giants—advertising, consumer, and retail sectors, supporting about $750 billion in AI spending this year—has started to slow down. In some cases, it is undermined by the very technology on which companies are betting.

Alphabet reported that advertising in search and other channels, which accounts for about half of its revenue, grew at the slowest pace in five quarters. Amazon reported a slowdown in e-commerce and advertising the day before. Microsoft and Meta also disappointed investors. Apple, which has invested little in AI, was a clear outsider in terms of dynamics. Companies are issuing unprecedented volumes of debt, selling shares, and taking on trillions of dollars in future obligations to pay for AI infrastructure.

The Nasdaq 100 is down 3.3% for the month, while the equal-weighted S&P 500 has gained 5.7%—the largest divergence since 2002. The drop in Alphabet's shares wiped out nearly $500 billion in market capitalization in one day. "The market is scratching its head—how will all this pay off?" said Dan Morgan of Synovus Trust.

U.S. index futures are falling as weak reports accelerate the outflow from tech stocks. Intel is down 25% after a forecast below expectations, Amazon is down 6.6%. Crypto stocks declined after the Binance hack of $6.3 billion: Strategy −5.0%, Robinhood −5.7%, MARA −4.7%. Reddit fell 24% on weak DAU and forecast.

Bonds

10-year US Treasuries reached almost 5.4%—the highest since 2002, Japanese ones 3.14%. Global government bonds with a maturity of 10+ years yielded 2.2% in October—the first month since February when long-term bonds outperformed short-term ones. Skeptics remind: energy inflation, policy tightening, and deteriorating public finances have not gone away—it's just that the price of risk has become more attractive.