Nasdaq Falls 2.6% as Meta's Cash Burn Revives Fears Over AI Spending

US tech stocks had their worst day in more than four months on Thursday, October 22, as the Nasdaq Composite fell 694 points, or 2.6%, to 26,008.86. The trigger was Meta Platforms, whose shares dropped about 7% after it reported its first quarterly cash outflow in more than a decade and said it would create a new class of nonvoting stock to help pay for its AI buildout.

The selloff spread well beyond one company. Chipmakers, cloud-computing specialists and power suppliers all fell hard, while investors moved money into US government bonds at the fastest pace in years.

It matters now because the biggest AI spenders report next. Microsoft, Amazon and Alphabet publish results next week, alongside a Federal Reserve policy decision, so the question of whether AI spending will pay off is about to be tested again.

Key facts at a glance

• Nasdaq Composite: down 2.6% to 26,008.86, its largest one-day fall since June 5, according to Reuters.
• Meta: free cash flow of negative $2.12 billion in the third quarter, against positive $10.63 billion a year earlier.
• Chips: the Philadelphia Semiconductor Index lost 6.7%, and Lam Research fell 12% after its results.
• Bonds: the 10-year Treasury yield fell more than 19 basis points, the biggest drop since March 2023, to just under 5%.
• What's next: Microsoft, Amazon and Alphabet earnings and a Fed decision arrive next week.

How we got here

For most of the past four years, large technology companies have powered US stock gains. Much of that rally rested on the idea that heavy spending on data centres and chips for artificial intelligence would turn into profits.

That spending has grown fast. The Brookings Institution estimates that building AI infrastructure will cost more than $10 trillion between 2025 and 2032, CBS News reported, citing High Frequency Economics chief economist Carl Weinberg, who said that would be the largest wave of investment in US history.

Investors had already been nervous in October. Credit default swaps, which are contracts that pay out if a borrower defaults and so act as a gauge of perceived credit risk, have risen for the largest AI spenders over the past year. Meta's hit a record on Thursday, according to both Reuters and CNBC.

Meta's results lit the fuse

On paper, Meta had a strong quarter. Revenue rose 26% to $64.60 billion, ahead of the $63.37 billion analysts expected, and the company guided to fourth-quarter revenue of $73 billion to $76 billion, according to its official third-quarter results.

The problem was the cost side. Meta spent $34.91 billion on capital expenditures in the quarter, including finance lease payments. That pushed free cash flow, the cash left after operating costs and investment, to negative $2.12 billion. Total costs and expenses rose 68% from a year earlier, a figure that includes a $9.9 billion legal charge.

Meta also raised the bottom of its 2026 spending forecast, which now runs from $135 billion to $145 billion, up from $130 billion to $145 billion.

Then there was the funding question. Meta said it would create nonvoting Class C shares, which CNBC reported are meant to preserve its "founder-led structure" and "provide Meta the ability to finance its growth." Reuters described the plan as a two-for-one split that would let the company raise capital for AI.

Investors read that as a sign that even Meta may need to sell new stock to keep building. "More spending, negative free cash flow, not enough revenue being generated from the spend (is) concerning investors that this is just sort of a bit of a money pit," Robert Pavlik, senior portfolio manager at Dakota Wealth, told Reuters.

The selloff spread across the AI trade

Meta's drop quickly became a broader verdict on AI spending. The table below shows some of the day's moves reported by Reuters and CBS News.

Neoclouds, the newer companies that rent out AI computing power, were hit especially hard. Nebius fell 7% even after announcing a new $3.5 billion credit line from Citigroup, and CoreWeave fell 10%, according to Reuters.

The day's mood was also shaped by comments from Nvidia chief executive Jensen Huang. Speaking at the company's GTC conference in Berlin, he told CNBC that "the demand of the capital is much greater than the availability of the capital." Thomas Hayes, chairman of Great Hill Capital, told Reuters those remarks about a financing bottleneck contributed to the selling.

Analysts kept coming back to the same point. "AI growth is dependent on capex," Adam Crisafulli, head of Vital Knowledge, wrote in a note quoted by CBS News, warning that debt and equity markets "are becoming increasingly less accommodating."

Money ran to bonds, and the ripple reached Asia

As stocks fell, investors bought US Treasuries, the government bonds seen as a safe place to park cash. The benchmark 10-year yield slid more than 19 basis points overnight, the biggest drop since March 2023, before steadying near 4.96%, according to Reuters reporting published by Business Standard. A basis point is one-hundredth of a percentage point.

Traders also cut bets on further Fed rate rises. The implied probability of a December hike fell to 85%, meaning it is no longer fully priced in, Reuters reported.

Asian markets followed Wall Street lower on Friday. Japan's Nikkei dropped 1.3% in early trading and was down about 5% for the week, while South Korea's KOSPI fell 1.7%, with memory chipmaker SK Hynix down 2.5%. Taiwan's market was closed because of a typhoon.

Oil added to the pressure. Brent crude reached a five-month high of $114 a barrel on Friday after Houthi attacks in Saudi Arabia raised fears of supply disruption, according to the same Reuters report.

What it means for you

If you hold index funds or a 401(k), ISA, RRSP or superannuation account, you probably felt this. Large US tech stocks make up a big share of global index funds, so a 2.6% Nasdaq drop shows up in many retirement balances even outside the US.

If you own bonds or bond funds, Thursday worked in your favour, because bond prices rise when yields fall. The rally also reached Australia, where the 10-year government bond yield fell 10 basis points to 5.164%, according to Reuters.

If you're a borrower, lower Treasury yields can eventually feed into lower rates on some loans, but one day's move is not a trend. The Fed's decision next week matters more.

If you work in tech or AI, watch the funding story. In the UK, Microsoft recently withdrew from anchoring Nscale's planned data centre in Loughton, Essex, where grid power may not arrive until the early to mid-2030s, Capacity reported. Financing and power limits can slow hiring and projects even when demand is high.

The other side of the argument

Not everyone sees Thursday as the start of something worse. Huang argued that the capital shortage reflects strong demand, not weakness. "You can't solve the absence of demand," he said in Berlin, according to Capacity, adding that neocloud operators are "completely sold out."

Bank of America analyst Tal Liani kept a buy rating and a $140 price target on CoreWeave ahead of its earnings next month, Reuters reported, though he also estimated the company will need to raise $20 billion to meet customer commitments.

Some strategists also cautioned against overreading one day. "The question is whether selling accelerates or markets stage another familiar reversal," Chris Weston, head of research at Pepperstone, said, according to Reuters. ING's Padhraic Garvey said he expected the 10-year yield to move back above 5%, citing inflation, fiscal deficits and the AI boom.

What happens next

• Next week: Microsoft, Amazon and Alphabet report results, alongside the Fed's policy decision, according to Bloomberg reporting carried by The Economic Times.
• November: CoreWeave reports earnings, a test of how neoclouds plan to fund their growth.
• December: the Fed's next decision, with markets now pricing an 85% chance of a hike.
• Open question: how much new stock Meta sells through its Class C shares, and when.

Conclusion

Thursday's drop was less about one bad quarter and more about who pays for the AI buildout. Meta grew revenue by 26% and still burned cash, which pushed investors to ask whether spending at this scale can be funded without diluting shareholders or loading up on debt.

Practical takeaways:

1. Check your exposure. Look at how much of your portfolio sits in large US tech and chip stocks, including through index funds.
2. Watch next week's results. Capital spending plans and cash flow from Microsoft, Amazon and Alphabet will show whether Meta's numbers are an outlier.
3. Follow the Fed decision. It will shape bond yields and borrowing costs more than any single day of trading.
4. Don't react to one session. Strategists are split on whether the selling continues, so avoid making long-term changes based on a single day.

FAQ

Why did Meta fall when its revenue beat forecasts?

Its spending outpaced its operating cash, leaving negative free cash flow of $2.12 billion, and its plan for new nonvoting shares signalled possible stock sales to fund AI.

What is a neocloud?

A company that rents out AI computing capacity, such as CoreWeave or Nebius, often funded heavily with debt.

Did the whole market fall?

No. The Dow finished slightly higher, and some non-tech stocks rose, including Procter & Gamble and Lockheed Martin, Reuters reported.