AI Capex Stock Selloff: Why the S&P 500 and Nasdaq Fell for a Second Week
US stocks closed the week of 19 to 23 October 2026 lower for the second week in a row. The S&P 500 fell 0.5% to 7,623.68. The Nasdaq Composite lost 0.7% to 25,955.34. The trigger was Meta's third-quarter report, which showed capital spending running ahead of the cash its business brings in. Expensive oil and a hawkish Federal Reserve added to the pressure (Reuters via Star-Advertiser).
The next test arrives quickly. Microsoft and Alphabet report on Wednesday 28 October, a few hours after the Fed's rate decision. Amazon follows on Thursday 29 October (Investinglive, About Amazon). Their cloud growth and spending plans may decide whether the AI trade steadies or slides further.
The information in this article is provided for educational purposes only and does not constitute financial advice. Consult a financial advisor before making investment decisions.
Table of Contents
- What Happened: The Short Answer
- Why Is the Stock Market Down This Week?
- Meta Q3 2026 Earnings: The Numbers That Moved the Market
- The Bigger Picture: Hyperscaler Capex Stocks Under Scrutiny
- Chip Stocks Falling: The Weakest Link
- Oil and Rates Added to the Pressure
- The Anthropic IPO: A Counterweight
- Big Tech Earnings This Week: What Markets Will Watch
- Stock Market Week Ahead: Key Dates
- S&P 500 Technical Analysis
- Five-Year Performance of the S&P 500 and Nasdaq
- S&P 500 Forecast 2026: What Analysts Expect
- Three Illustrative Scenarios
- Key Risks to Watch
- How to Trade a Stock Market Selloff: What Traders Often Watch
- Conclusion
- Frequently Asked Questions
What Happened: The Short Answer
The market has started to ask a harder question about artificial intelligence. For much of the past two years, many investors rewarded companies linked to AI. Now they want proof that the spending turns into revenue and cash.
- Meta's quarterly capex of $34.91bn exceeded its operating cash flow of $32.79bn.
- Its free cash flow turned negative for the first time in more than a decade.
- The Nasdaq fell 2.6% on Thursday 22 October, its worst day since early June.
- Chip stocks led the fall, with the Philadelphia Semiconductor Index (SOX) down 6.7% that day.
- Small caps and the Dow held up better, which may point to some rotation away from big tech.
Those figures come from Reuters coverage of the session (Reuters via Star-Advertiser) and from Meta's results as reported by SiliconANGLE.
Weekly Scorecard for the Major US Indices
Source: AP via La Nacion and Reuters. Closing data for 23 October 2026. Past performance is not a reliable indicator of future results.
Why Is the Stock Market Down This Week?
Three forces met in the same week. The first was a change in how investors judge AI spending. The second was oil, which climbed after attacks on Saudi energy sites. The third was the Fed, which raised rates in September and may not be finished (Reuters via ARY News, MUFG Research).
The Meta Report Triggered the Selling
Meta beat revenue forecasts. That did little to support the shares. Investors focused on the bill for AI data centres, which now exceeds the cash the company generates. Meta also said it would create a new class of nonvoting shares, which opens a route to raise equity. The stock fell 7.0% on 22 October (Reuters).
Investors Now Want Proof
Paul Nolte of Murphy & Sylvest summed up the mood on 22 October. "Investors are starting to realize that there are some holes in the AI story," he told Reuters. He added that the indices feel it because they are heavily weighted towards technology.
A day later, Kristina Hooper of Man Group pointed to the risk of a smaller data centre build-out next year. "There is still fallout from the questioning of the AI trade," she said (Reuters).
Day by Day: How the Selloff Unfolded
Source: Reuters, 22 October, Reuters, 23 October and Yahoo Finance, 26 October. The 26 October S&P 500 level is our calculation from Friday's close and Yahoo's percentage change. Past performance is not a reliable indicator of future results.
Winners and Losers Inside the Market
The selloff was narrow. Technology took the hit, while energy hit a record on 23 October (Reuters). On 22 October, Procter & Gamble rose 5.6% and Blackstone gained 8.4% after saying wider spreads on AI-related debt could offer higher returns (Reuters).
Source: Reuters, 22 October and Reuters, 23 October. Past performance is not a reliable indicator of future results.
Meta Q3 2026 Earnings: The Numbers That Moved the Market
Meta's third quarter looked strong on the surface. Revenue rose 26% to $64.6bn, ahead of the roughly $63.4bn analysts expected. The shares even rose 2.2% after hours. However, the mood turned the next day as investors studied the cash flow statement (Hargreaves Lansdown).
Source: Hargreaves Lansdown and SiliconANGLE. Company data for the quarter to 30 September 2026. Past performance is not a reliable indicator of future results.
Why Negative Free Cash Flow Worried Investors
A negative free cash flow figure means the company spent more on investment than its operations produced. For Meta, this was the first cash outflow in more than a decade (Reuters). Hargreaves Lansdown noted that management expects to spend aggressively again in 2027 if its Muse assistant keeps gaining users (HL).
Meta did not give a revenue or capex figure for 2027. It did guide Reality Labs losses of about $15bn for 2027, according to SiliconANGLE.
The New Class C Shares
Meta will issue one nonvoting Class C share for each existing Class A and Class B share. SiliconANGLE describes the move as a two-for-one split with nonvoting stock. The change takes effect with a charter amendment on 19 January 2027 (SiliconANGLE). For a deeper look at the stock itself, our Meta stock analysis for October 2026 covers the chart and the story in more detail.
The $95bn Financing Plan
On Monday 26 October, Meta set out plans to raise up to $95bn for its AI build-out (Yahoo Finance). The shares slipped 1.77% to $631.27 at about 9:45 am ET that morning (GuruFocus via TradingView).
Source: GuruFocus via TradingView, Barchart via Yahoo Finance and Yahoo Finance. Announced 26 October 2026.
Equity funding has an upside. It keeps debt in check. The downside is dilution, because more shares divide the same profits.
The Bigger Picture: Hyperscaler Capex Stocks Under Scrutiny
Meta is one of four US giants spending heavily on AI infrastructure. Moody's Ratings now expects hyperscaler capex of about $785bn in 2026, up from its March estimate of $700bn. It sees the total approaching $1trn in 2027 (DatacenterDynamics).
2026 Capex Plans by Company
Source: S&P Global Market Intelligence, Bloomberg Law, Tradingpedia and Hargreaves Lansdown. Company plans can change. Forecasts are not a reliable indicator of future performance.
Added up, these four plans reach roughly $725bn to $745bn. Moody's wider figure also covers Oracle and CoreWeave (DatacenterDynamics).
AI Capex Free Cash Flow: Where the Cash Is Going
Source: Hargreaves Lansdown, InsiderFinance, 24/7 Wall St. and Electrek. Past performance is not a reliable indicator of future results.
Tesla stands out as a small sign of discipline. Its 10-Q put 2026 capex at more than $20bn, down from more than $25bn (Electrek).
AI Capex ROI: The Case on Both Sides
The debate has two clear camps. Supporters point to fast cloud growth and huge order books. Sceptics point to cash burn and short-lived hardware.
Source: DatacenterDynamics, InsiderFinance, 24/7 Wall St., Yahoo Finance and Reuters and Hargreaves Lansdown.
Moody's has warned before that higher capital intensity and debt could lead to a reassessment of creditworthiness if profit growth fails to appear (DatacenterDynamics).
Chip Stocks Falling: The Weakest Link
Chipmakers took the heaviest blows. On 22 October the SOX dropped 6.7%, its biggest daily fall since 23 June. It ended that day more than 26% below its 22 June record close. Even so, it was still up 51.5% for the year, which shows how far the group had run before the slide (Reuters).
Neoclouds and Korean Tech Felt It Too
The pain spread to companies that rent out AI computing power. A Yahoo Finance basket of eight so-called neoclouds has lost more than 40% since late July (Yahoo Finance). Many of these firms use debt to buy chips, so funding costs can weigh on them.
In Seoul, memory makers fell sharply on 22 October, giving back the previous day's gains.
Source: StockHub. Past performance is not a reliable indicator of future results.
This was a smaller drop than the KOSPI's fall of nearly 8% on 2 July 2026, which also stemmed from AI demand fears (The Korea Herald).
Oil and Rates Added to the Pressure
AI doubts did not act alone. Brent crude settled at $116.72 on 23 October, up 3.14% on the day and 6% on the week. That was its highest settlement since late April, after Houthi attacks on Saudi Arabia raised supply concerns (Reuters via ARY News).
The Macro Backdrop in Numbers
Source: Reuters via ARY News, Yahoo Finance, MUFG Research and Reuters. Past performance is not a reliable indicator of future results.
Why Oil Prices and Stock Market Moves Are Linked Right Now
Dearer energy can keep inflation high. Higher inflation can push the Fed to hike again, and higher rates raise the cost of funding AI projects. The Fed raised rates by 25 basis points in September, its first hike since 2023 (MUFG Research). Markets widely expect a hold on 28 October. A hike in December is largely priced in (Investinglive).
US consumers feel the squeeze. University of Michigan sentiment edged down to near a record low in October (Reuters). Information on CFDs on commodities is available on our commodity CFDs page.
The Anthropic IPO: A Counterweight
Monday brought some relief. Anthropic publicly filed its S-1 prospectus, and chip stocks rose. Nvidia closed at $216.00, up 2.39%. Broadcom and Micron also gained (Yahoo Finance).
What the Anthropic S-1 Filing Shows
Source: Yahoo Finance, reporting on the S-1 filed 26 October 2026. Past performance is not a reliable indicator of future results.
This is the demand side of the AI capex debate. Revenue at AI labs is one source of the income needed to pay for the data centres. The filing also flags a risk. Anthropic warned that regulation could raise its costs or limit demand for its models (Yahoo Finance).
Investors now want proof that AI spending turns into revenue. They also want to see that the bill can be funded without straining balance sheets.
Big Tech Earnings This Week: What Markets Will Watch
This week is crowded. About one-third of S&P 500 companies report, including three of the largest AI spenders (Reuters). Our preview of the US100 in big tech earnings week looks at how the index has set up for these reports.
Consensus Expectations
Source: Tradingpedia, InsiderFinance and S&P Global Market Intelligence. Estimates as published by each source; the Amazon consensus dates from 11 August 2026 and may have changed. Forecasts are not a reliable indicator of future performance.
Microsoft Q1 Fiscal 2027 Earnings
Microsoft guided capex above $50bn for the quarter, including lease reclassification. 24/7 Wall St. compares this with $19.39bn a year earlier. Azure grew 43% last quarter and passed $100bn in annual revenue. The company also said it aims to stay free cash flow positive in fiscal 2027 (24/7 Wall St.).
The bar is high. In January, Azure beat guidance with 38% growth, yet the stock fell 10% because buy-side hopes were higher (Tradingpedia).
Alphabet Q3 2026 Earnings
Google Cloud is the number many will check first. It grew 82% in Q2 to about $24.8bn. Q2 capex of about $44.9bn pushed free cash flow to -$5.9bn (InsiderFinance). Group revenue was $119.8bn in Q2, according to Alphabet's Q2 2026 earnings release.
Its last capex raise hurt. Alphabet shares fell more than 6% after it lifted its 2026 plan to $195bn to $205bn in July (Bloomberg Law). Our Alphabet Q3 2026 earnings preview covers the stock in more depth.
Amazon and AWS
AWS revenue rose 36.8% to $42.2bn in Q2, its fastest growth in 18 quarters. Amazon then raised its 2026 capex outlook to about $220bn (S&P Global Market Intelligence). Amazon will hold its results call at 5:00 pm ET on 29 October (About Amazon).
Signals That Could Matter Most
- Cloud growth at or above the guided pace may ease spending fears.
- A further rise in 2027 capex without faster cloud growth could add pressure.
- Comments on free cash flow may matter as much as earnings per share.
- Any new plan to issue shares or debt could weigh on sentiment.
- Order backlogs show how much future revenue is already contracted.
Stock Market Week Ahead: Key Dates
The calendar is packed. The Fed decides and three hyperscalers report within two days. Key US data follows on Thursday. UK times below reflect the four-hour gap that applies until the US clocks change on 1 November.
Source: Investinglive, InsiderFinance, Microsoft via Finviz, BEA, About Amazon, MacTrast and BLS. From 2 November the gap between ET and UK time is five hours.
Release times can shift, so many traders keep an eye on the economic calendar during the week.
S&P 500 Technical Analysis
The S&P 500 sits between a band of support below and recent highs above. Reuters analyst Terence Gabriel set out the levels in his 23 October column (Reuters via Kitco).
S&P 500 Support and Resistance
Source: Reuters via Kitco, 23 October 2026. Past performance is not a reliable indicator of future results.
Gabriel noted that a move above 7,770.40 could put the record highs back in view. In his view, a close below the 100-day average near 7,604 could shift attention to 7,508 and 7,484. On Friday the index closed 2.8% below its intraday record. Friday's close of 7,623.68 sat just below the 16 October low and just above the 1 October low.
Nasdaq Composite Levels
The Nasdaq Composite set a record close of 27,477.31 on 5 October 2026, the latest record confirmed by ROIC.ai. At Friday's close of 25,955.34 it stood about 5.5% below that level. A 10% drop from the record would take it to about 24,730.
Five-Year Performance of the S&P 500 and Nasdaq
A longer view puts recent swings in context. Both indices fell sharply in 2022 and then rose for three years in a row.
Source: Wikipedia, S&P 500 annual returns, Wikipedia, Nasdaq Composite annual returns, Reuters via MarketScreener and AP via La Nacion. Price index changes for full calendar years 2021 to 2025, plus 2026 to date. Index levels exclude dividends, and figures are shown before taxes and costs, which may vary. Past performance is not a reliable indicator of future results.
S&P 500 Forecast 2026: What Analysts Expect
Most big banks set year-end targets above the current level. One independent house sits below it.
Source: Reuters via Kitco, HSBC, Reuters via Kitco, J.P. Morgan and Continuum Economics. Forecasts are not a reliable indicator of future performance.
Continuum Economics described the AI pullback as a possible correction or consolidation. It also argued that earnings hopes outside AI looked too optimistic (Continuum Economics). These targets were set before the latest selloff and may be revised.
Three Illustrative Scenarios
The paths below are illustrative only. They show how markets could react to different outcomes and are not predictions.
Source: levels from Reuters via Kitco. Scenarios are the author's illustrative analysis. Forecasts are not a reliable indicator of future performance.
The Rotation Case
The Russell 2000 gained 2% during the selloff week. The Dow rose 0.4% for its third weekly gain in a row (Reuters). In some past periods, money has moved towards energy and smaller companies when market leaders weakened. That pattern may or may not hold this time.
Key Risks to Watch
- Funding risk grows as capex shifts from internal cash to new shares and bonds.
- Short-lived GPUs lose value quickly, which raises depreciation costs.
- A Fed hike in December could lift borrowing costs further.
- Further attacks on Gulf energy sites could push oil higher again.
- Heavy index weights in tech mean AI doubts can drag the whole market.
- US midterm elections on 3 November may add short-term volatility.
Positioning is another factor. Goldman Sachs estimates retail trading volumes have fallen by more than 40% since late 2025 (Yahoo Finance). Lighter participation can make moves sharper in either direction.
How to Trade a Stock Market Selloff: What Traders Often Watch
Nothing here is a recommendation. It describes approaches that many traders monitor in volatile periods.
Common Approaches in Volatile Weeks
Illustrative overview of common market practice, for educational purposes only.
A Pre-Event Checklist
- Many traders note the exact release time of each report.
- Some size positions smaller ahead of results to manage risk.
- Stop-loss orders can help manage risk, although gaps may cause slippage.
- Options-implied moves may give a rough idea of the swing the market expects.
- Some traders watch the 100-day average near 7,604 to frame the trend.
If you are new to indices, our guide to index trading explains how these markets work. Our article on investing in a bear market covers how some investors approach longer downturns.
Ways to Gain Exposure With Admirals
Admirals offers CFDs on indices, including a CFD on the S&P 500. You can find details on our index CFDs page. It also offers CFDs on shares of large US companies, listed on our share CFDs page. Instrument availability can vary, so it is worth checking the contract specifications first.
A demo account uses virtual funds, so you can practise without real money. Results may differ from live trading.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Conclusion
The AI capex stock selloff is a test of patience. Meta showed that even a strong revenue beat may not satisfy investors when spending outruns cash flow. The three biggest cloud providers now face the same question within about a day of each other.
The data cut both ways. Cloud growth and backlogs are strong, and Anthropic's filing shows real revenue at AI labs. However, free cash flow is falling, and funding is shifting to equity and debt. Oil near $110 to $117 and a Fed that may hike again add to the strain. Many chartists watch the 100-day average near 7,604 and the 21 October high of 7,770.40 for clues to the next move in the S&P 500.
Frequently Asked Questions
What Caused the AI Capex Selloff?
Meta's capex of $34.91bn exceeded its operating cash flow, which raised doubts about funding and returns on AI spending.
How Much Did the S&P 500 Fall Last Week?
The S&P 500 fell 0.5% in the week to 23 October, closing at 7,623.68, its second weekly loss.
How Much Will Hyperscalers Spend on AI?
Moody's expects hyperscaler capex of about $785bn in 2026, with spending approaching $1trn in 2027.
When Do Microsoft and Alphabet Report?
Both report after the US close on Wednesday 28 October 2026, on the same day as the Fed decision.
Is the AI Bubble About to Burst?
Nobody can know that. Some analysts call it a correction, while others see strong demand supporting the spending cycle.
Will the Fed Hike in October?
Markets widely expect a hold on 28 October, though many investors see a December hike as likely.
What Support Level Matters Most for the S&P 500?
Many chartists watch the 100-day moving average near 7,604, which has held on a closing basis since April.
Will the Stock Market Recover?
That is uncertain. This week's results from the three big cloud providers may shape sentiment in either direction.
Some of the content on this page was created with the help of automated tools. All final text has been reviewed by Admirals and is under its editorial responsibility.
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
- With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
- The Analysis is prepared by an analyst (hereinafter “Author”). The Author Admirals is an employee /a contractor for Admirals. This content is a marketing communication and does not constitute independent financial research.
- Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
- Any kind of past or modelled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.
Sources
- Wall Street closes lower to end rocky week, Reuters via Honolulu Star-Advertiser, accessed 27 October 2026.
- Nasdaq plunges 2.6% as AI spending fears spark tech selloff, Reuters via Honolulu Star-Advertiser, accessed 27 October 2026.
- How major US stock indexes fared Friday 10/23/2026, AP via La Nacion, accessed 27 October 2026.
- Meta beats on revenue and splits its stock with nonvoting shares to raise capital, SiliconANGLE, accessed 27 October 2026.
- Meta (Q3 Results): strong quarter, spending still a question, Hargreaves Lansdown, accessed 27 October 2026.
- Meta Stocks Fall 1.8% With $95 Billion AI Funding Plan, GuruFocus via TradingView, accessed 27 October 2026.
- A $95 Billion Reason Why META Stock Is in Focus Today, Barchart via Yahoo Finance, accessed 27 October 2026.
- Stock market today, 26 October 2026, Yahoo Finance, accessed 27 October 2026.
- Moody's hyperscaler capex forecasts marked up by $85bn, DatacenterDynamics, accessed 27 October 2026.
- Amazon postQ: AWS reaccelerates as AI investment pushes CapEx higher, S&P Global Market Intelligence, accessed 27 October 2026.
- Alphabet Falls as $205 Billion Spending Plan Fuels AI Cost Fear, Bloomberg Law, accessed 27 October 2026.
- Microsoft Faces High Bar as Investors Await Q1 Earnings, Tradingpedia, accessed 27 October 2026.
- Microsoft's $50 Billion Gamble, 24/7 Wall St., accessed 27 October 2026.
- Alphabet Q3 2026 Earnings Preview, InsiderFinance, accessed 27 October 2026.
- Alphabet Q2 2026 earnings release, Exhibit 99.1, SEC EDGAR, accessed 27 October 2026.
- Tesla quietly cuts 2026 capex guidance, Electrek, accessed 27 October 2026.
- KOSPI drops over 3% to retreat to 5,500 level, StockHub, accessed 27 October 2026.
- Kospi tumbles 8% as AI demand fears hit chip stocks, The Korea Herald, accessed 27 October 2026.
- Oil Prices Jump $3 as Houthi Attacks Fuel Supply Fears, ARY News, accessed 27 October 2026.
- September 2026 FOMC Recap, MUFG Research, accessed 27 October 2026.
- Earnings macro week ahead: The Fed and Big Tech report on the same day, Investinglive, accessed 27 October 2026.
- Microsoft announces quarterly earnings release date, Finviz, accessed 27 October 2026.
- Amazon will share its Q3 2026 earnings on October 29, About Amazon, accessed 27 October 2026.
- Apple to Announce Fiscal Q4 2026 Earnings on November 2, MacTrast, accessed 27 October 2026.
- Release Schedule, U.S. Bureau of Economic Analysis, accessed 27 October 2026.
- Schedule of Selected Releases for November 2026, U.S. Bureau of Labor Statistics, accessed 27 October 2026.
- Mapping the Market: Path to S&P 500 rally strewn with obstacles, Reuters via Kitco, accessed 27 October 2026.
- Nasdaq Composite Marks Second Closing Record in a Row, ROIC.ai, accessed 27 October 2026.
- S&P 500, Wikipedia, accessed 27 October 2026.
- Nasdaq Composite, Wikipedia, accessed 27 October 2026.
- Wall Street ends year's final session lower but posts big annual gains for 2025, Reuters via MarketScreener, accessed 27 October 2026.
- HSBC lifts S&P 500's year-end target to 8,100 on earnings strength, Reuters via Kitco, accessed 27 October 2026.
- J.P. Morgan lifts 2026-end target for S&P 500 to 8,000, Reuters via Kitco, accessed 27 October 2026.
- AI Equities: Correction/Consolidation?, Continuum Economics, accessed 27 October 2026.
