US tech stocks closed October sharply lower as AI capital spending concerns rattled chipmakers and triggered a rotation into defensive sectors
US equity markets endured a bruising end to October 2026. The Nasdaq Composite fell 2.86 percent on October 31 to close at 25,437.00 — its sharpest single-session decline since June.
The Nasdaq dropped 5.3 percent for the month, its steepest fall since March 2025, according to CNBC.
The S&P 500 closed 1.82 percent lower at 7,580.07. The Dow Jones Industrial Average shed 572.25 points, or 1.09 percent, to finish at 51,770.31.
What does the AI spending scrutiny mean for tech-heavy portfolios?
The sell-off was not a broad market panic — it was a verdict on AI infrastructure costs. Alphabet posted its worst day on record after missing on earnings and revenue in the third quarter. The company logged negative free cash flow of US$9.07 billion.
Amazon reported negative free cash flow of US$42.4 billion and held its full-year capital expenditure forecast at US$220 billion.
Neither Alphabet nor Microsoft raised their capex guidance — a signal the market read as caution rather than confidence.
“Last year was hope. This year is: At the end of the day, how does this work in real world terms, like how to finance it, and who gets the economics. Those questions are much more difficult to answer,” said Keith Buchanan, senior portfolio manager at Globalt.
Intel collapse deepens chipmaker pain
Intel fell nearly 29 percent after issuing a weak fourth-quarter outlook. Revenue in its client computing and physical AI group declined five percent year-over-year to US$8.1 billion.
The company guided for fourth-quarter earnings of 25 cents per share on revenue of US$15 billion to US$16 billion. That fell well short of LSEG estimates of 43 cents and US$17.1 billion.
Advanced Micro Devices dropped close to 11 percent, while Nvidia and Broadcom fell four and five percent respectively.
Periods of sector repricing have historically prompted investors to rebalance and broaden equity exposure beyond concentrated technology positions.
Semiconductor ETFs break key technical levels
The VanEck Semiconductor ETF (SMH) broke below its 200-day moving average for the first time since May 30, 2025. The iShares Semiconductor ETF (SOXX) did the same for the first time since June 3, 2025.
The last time SMH crossed below that level, in May 2025, it took three months to recover. That is a meaningful lag for any portfolio with a rebalancing trigger tied to technical thresholds.
The Roundhill Memory ETF (DRAM) finished October down 20 percent. The iShares A.I. Innovation and Tech Active ETF (BAI) shed close to 17 percent on the month. Neocloud names bore the sharpest losses: CoreWeave cratered 37 percent in October, Nebius nearly 35 percent.
Why are investors rotating into defensive sectors now?
Consumer staples and healthcare moved sharply higher as investors sought shelter. Coca-Cola and Walmart both added more than one percent, cushioning the Dow’s losses.
State Street’s Consumer Staples Select Sector ETF (XLP) gained nearly two percent, hitting an intraday all-time high of US$90. Altria Group, Philip Morris, and Keurig Dr. Pepper each reached 52-week highs on the session.
State Street’s Health Care Select Sector ETF (XLV) touched a 52-week intraday high of US$187.99. Regeneron Pharmaceuticals jumped 11 percent after reporting adjusted earnings of US$20.07 per share on revenue of US$5.12 billion. That beat the FactSet consensus of US$16.42 per share and US$4.56 billion.
October’s rotation made the case for diversification: defensive names did what they were positioned to do while growth mandates absorbed the damage. Diversification across sectors, regions, and asset classes remains a core principle for building resilient client portfolios through periods of concentrated losses.
Anthropic debt rating concerns add AI IPO risk
The Financial Times reported on October 30, 2026, citing sources, that Blackstone told investors Anthropic may not receive an investment-grade rating after its IPO. Debt for Anthropic — structured as a public benefit corporation rather than a C-corp — is expected to land in the double-B range.
That reverses earlier guidance that investment grade was achievable before year-end. No major agency has issued a formal rating; the forecast is Blackstone’s alone.
What October made clear is that the AI buildout’s financing assumptions are still being worked out. The answers will shape how this sector is valued for years ahead.
