U.S. technology shares slid for a second consecutive session on Friday, with the Nasdaq composite losing more than 3.5%. The decline was driven by sharp drops in heavyweight names – Intel fell as much as 30%, Reddit slumped 26% and Amazon’s stock dipped 6% before modestly recovering. Analysts linked the sell‑off to a combination of weaker‑than‑expected earnings and the growing scale of artificial‑intelligence (AI) spending across the sector.

AI spending on the rise

Major players are committing vast sums to AI. Meta, Alphabet, Oracle, Amazon and Microsoft together pledged $800.6 billion for AI‑related projects in 2026. Alphabet alone expects to spend up to $205 billion this year, while Amazon has earmarked $220 billion for AI data centres, network equipment and servers. These figures illustrate how AI has become a central focus of corporate capital allocation.

Investor reaction to earnings

Several firms reported earnings that fell short of market expectations. Intel’s finance chief warned that the company does not anticipate generating more cash than it spends this year and forecast lower‑than‑expected fourth‑quarter revenue. The chip maker also signalled a continued slowdown in PC demand through early next year. Meanwhile, Amazon disclosed that its cash outflow had surged six‑fold over three months, prompting a 6% overnight fall in its shares. Reddit’s disappointing daily‑user numbers and a warning that Google’s AI‑driven search was eroding referral traffic contributed to its 26% plunge.

Is an AI bubble looming?

Analysts are debating whether the sector is approaching an AI bubble. Some argue that the cost of building AI data centres and developing software could outweigh the revenue they are expected to generate. Kathleen Brookes of XTB noted that investors have become “ruthless”, punishing any sign of earnings disappointment. Yet, despite the recent pull‑back, many tech stocks remain well above their levels a year ago – the Nasdaq is up 7.6% over the past twelve months, Amazon up nearly 7%, while Alphabet is down only 1.6%.

Outlook for the tech sector

Market participants are watching closely to see if the current slowdown is a temporary correction or the start of a broader retreat from AI‑heavy valuations. As Chris Low of FHN Financial put it, the sector is showing “significant growing pains” as it aggressively pursues AI build‑outs. If AI‑related stocks continue to struggle, investors may shift focus to a new market theme, potentially reshaping the drivers of equity performance in the coming months.

In short, the rally in AI spending has sparked both enthusiasm and caution. While the capital infusion signals confidence in the technology’s long‑term potential, the recent earnings disappointments and steep share price declines underscore the market’s demand for tangible returns on those investments.