Yesterday, October 29, the AI trade cracked again. It began with Alphabet: its report showed negative free cash flow of $9.1 billion, and the stock fell 12% - its worst day in 22 years on the public market. After the bell, Amazon (down 10%) and Intel (down 22%) joined the rout. The Nasdaq Composite lost 1.4% in the session, and Nasdaq futures fell another 1.4% after the earnings.
Fig. 1. The AI selloff on 29 October, %. Source: media, company reports.
Fig. 2. Amazon trailing 12-month free cash flow, $ billion. Source: Amazon.
Fig. 3. Intel Q4 guidance versus consensus. Source: Intel, Bloomberg.
Fig. 4. US indexes on 29 October, %. Source: AP.
Fig. 1. The AI selloff on 29 October, %. Source: media, company reports.
Amazon: profit yes, cash no
Amazon actually beat many peers: revenue rose 12% to $201.9 billion, AWS grew 39%, and operating margin hit a record 13.9%. But earnings per share missed (1.89 vs 1.97), and trailing 12-month free cash flow swung to minus $42.4 billion, from plus $14.8 billion a year earlier. Capex is running at $220 billion and, by analyst estimates, will rise to $280 billion in 2027.
Fig. 2. Amazon trailing 12-month free cash flow, $ billion. Source: Amazon.
Intel: growth yes, guidance no
Intel's revenue rose 21% to $16.5 billion, with data centres up 78%. But its fourth-quarter guidance came in far below expectations: $15-16 billion versus $17 billion, and EPS of 25 cents versus 43. The market did not want to hear about growth: the stock lost about 22% after hours. CEO Lip-Bu Tan admitted Intel cannot fill all orders because of material shortages.Fig. 3. Intel Q4 guidance versus consensus. Source: Intel, Bloomberg.
Punished for cash, not growth
Will McGough of Prime Capital Financial put it well: "Strong AI demand no longer guarantees strong stock performance. We're in a period again where the market's re-underwriting the headline risk of all the capex." The selloff is narrow: the Nasdaq fell 1.4%, while the Russell 2000 rose 1%. The pain is concentrated in those spending the most on AI. Microsoft, whose cash flow stayed positive ($15.8 billion, albeit down 27% year on year), looked far calmer.Fig. 4. US indexes on 29 October, %. Source: AP.
⚠ IMPORTANT
The AI race is no longer a growth story. It is now a story about cash that companies have less and less of. Revenue is rising and paper profit exists, but cash flow, guidance and debt are deteriorating at once. Even a strong report cannot save a stock if free cash flow is negative.