Technology stocks suffered a sharp selloff on Wall Street this week as investors grew increasingly worried that the hundreds of billions of dollars being poured into artificial intelligence may take longer than expected to generate meaningful returns.
At the same time, some of the world’s biggest oil companies were enjoying a dramatically different quarter.
ExxonMobil, Chevron and BP reported billions of dollars in profits, benefiting from higher energy prices and exceptionally strong refining margins as geopolitical disruptions tightened global fuel supplies.
The contrast has created two very different stories across financial markets: investors are questioning the cost of the AI boom just as traditional energy companies are generating enormous amounts of cash.
Nasdaq Suffers Sharp Selloff
The technology-heavy Nasdaq Composite dropped 2.9% on Friday, Oct. 30, marking its biggest one-day percentage decline since June.
The index closed at 25,437, while the S&P 500 fell 1.8% and the Dow Jones Industrial Average dropped 1.1%.
For the week, the Nasdaq lost about 2%.
The decline extended a difficult month for technology shares. The Nasdaq 100 has fallen more than 5% during October, putting more than $2 trillion in market value at risk as investors reconsider valuations attached to companies at the center of the artificial-intelligence boom.
Chipmakers were among the hardest-hit stocks.
Nvidia fell about 4.2% Friday, while AMD dropped nearly 11%. Intel plunged 28.6% after disappointing investors with its quarterly results and outlook.
The broader semiconductor index fell more than 7% during Friday’s session.
Investors Question Massive AI Spending
The selloff reflects a significant change in Wall Street’s attitude toward artificial intelligence.
For much of the past several years, investors rewarded technology companies for spending aggressively on AI chips, servers and data centers.
Now they are increasingly asking a more difficult question:
When will all that spending start producing enough profit to justify the cost?
Amazon, Alphabet, Meta and Microsoft have outlined enormous capital spending programs as they compete to build AI infrastructure.
Combined capital expenditures announced by major technology companies have reached hundreds of billions of dollars, much of it linked to data centers, networking equipment and advanced chips.
Concerns intensified after several major companies reported earnings showing heavy cash spending.
Alphabet shares suffered a steep decline after investors focused on rising AI expenditures and weaker-than-expected performance in parts of its advertising business.
Amazon also came under pressure after its latest earnings highlighted the continuing cost of expanding AI and cloud infrastructure.
The issue is no longer whether companies believe AI will become important.
Wall Street largely agrees that it will.
Instead, investors are questioning how long it will take for AI revenue to catch up with the enormous amount of money being spent to build the technology.
AI Companies Face a Return-on-Investment Test
Big Tech companies are building data centers at an extraordinary pace.
Those facilities require expensive Nvidia and other AI chips, networking equipment, huge quantities of electricity and extensive construction.
That means AI investments can consume significant amounts of cash before generating revenue.
Morgan Stanley estimates AI infrastructure spending could exceed $1 trillion next year, while J.P. Morgan has projected global AI investment reaching trillions of dollars by the end of the decade.
For investors, that spending is becoming harder to ignore.
Companies that demonstrate strong AI-driven revenue growth may continue to receive investor support.
But businesses that significantly increase AI spending without producing comparable growth in revenue or cash flow could face much greater scrutiny.
That shift helps explain why some technology stocks have reacted so violently to earnings disappointments.
Oil Companies Tell a Very Different Story
While technology companies are spending enormous amounts of money preparing for an AI-driven future, the world’s largest oil companies are generating huge profits from current energy markets.
ExxonMobil reported $15.4 billion in third-quarter GAAP earnings.
On an adjusted basis, profit reached $17.5 billion, up sharply from the previous quarter.
The company generated $25.7 billion in operating cash flow and $19.1 billion in free cash flow during the quarter.
Exxon also returned about $9.4 billion to shareholders through dividends and share repurchases.
Its adjusted earnings per share reached $4.23, beating analysts’ expectations.
Chevron Earns Nearly $10 Billion
Chevron also delivered a powerful quarter.
The company reported $9.9 billion in third-quarter earnings, equivalent to $5.06 per diluted share.
Adjusted earnings reached approximately $10.4 billion, or $5.28 per share.
Chevron said its U.S. oil production remained strong, while its American refineries achieved record crude throughput.
U.S. refinery utilization reached 98%, helping the company benefit from unusually profitable refining conditions.
Chevron shares rose as investors reacted positively to the stronger-than-expected results.
BP Profit Surges to $8.46 Billion
British oil giant BP also delivered one of its strongest quarters in years.
BP reported underlying replacement cost profit of $8.46 billion, compared with just $2.2 billion during the same quarter a year earlier.
Analysts had expected approximately $7.33 billion.
BP generated $14.8 billion in operating cash flow while reducing net debt to $13.9 billion.
The reduction allowed the company to reach its debt target about a year earlier than planned.
BP said it plans to use some of its excess cash to address remaining liabilities related to the 2010 Deepwater Horizon disaster.
Why Oil Profits Are So High
The huge profits are not simply the result of producing more oil.
A major factor has been refining margins.
Global disruptions have reduced the amount of gasoline, diesel and other refined products available in some markets.
Those shortages have made refineries significantly more profitable.
Exxon’s refining business became especially important during the quarter, while Chevron also reported unusually strong downstream earnings.
Higher crude prices have helped as well.
Energy markets have remained volatile because of conflicts in the Middle East and continued disruptions connected with the Russia-Ukraine war.
Brent crude and U.S. oil prices have traded above $100 a barrel during parts of the recent period, providing additional support for oil-company earnings.
Exxon, Chevron and BP Are Generating Massive Cash
The contrast between technology and energy companies is especially visible in cash flow.
AI companies are directing increasing amounts of cash toward infrastructure.
Oil companies, meanwhile, are generating more cash than they currently need for operations and investment.
The five largest international oil companies collectively generated about $67 billion in cash after operating and capital costs during the third quarter, more than double the amount produced a year earlier.
Rather than dramatically expanding drilling or constructing new refineries, several companies are using much of that money to reduce debt, strengthen balance sheets, pay dividends or repurchase shares.
A Tale of Two Wall Street Trades
The diverging performance highlights a broader change taking place in markets.
For several years, technology — particularly artificial intelligence — was one of Wall Street’s most powerful investment themes.
Companies closely associated with AI experienced enormous increases in market value.
The technology itself remains central to corporate investment plans, and demand for AI computing continues to grow.
But investors appear less willing to overlook huge expenses simply because they are associated with artificial intelligence.
They increasingly want evidence that those investments will generate substantial and sustainable returns. Oil companies face almost the opposite situation.
Rather than spending heavily on speculative future growth, they are benefiting from strong near-term cash generation produced by higher energy prices and refining margins.
That does not necessarily mean the technology boom is ending or that oil companies will continue producing record profits indefinitely. But the latest earnings season has demonstrated how quickly investor priorities can change.
On one side of Wall Street, investors are asking whether hundreds of billions of dollars in AI spending will eventually pay off. On the other, Exxon, Chevron and BP are already counting billions of dollars in profits.
