Shares of technology-heavy growth stocks slid in October as the Nasdaq Composite fell 5.3%, extending a familiar pattern of sharp monthly pullbacks during periods of high expectations around artificial intelligence. Investors pointed to recent results from major AI-linked companies, while also debating whether surging data-center spending will eventually translate into profits.
Key takeaways
- Price move: The Nasdaq Composite dropped 5.3% in October, its weakest monthly performance since tariff-related pressure in early 2025.
- Catalyst: Concerns about AI spending and monetization intensified after investors digested reporting from Alphabet and Amazon.
- Implication: History suggests the index has often rebounded after similar drawdowns, but the next leg depends on whether AI capex converts to stronger cash generation.
- Investment focus: Market participants are watching free cash flow, margins, and the pace of AI infrastructure revenue scaling.
What drove the Nasdaq’s October decline
The Nasdaq Composite fell 5.3% in October, marking its worst month since President Trump’s tariffs disrupted markets earlier in 2025. This time, the primary driver was investor anxiety around the durability of the AI boom and the path from heavy infrastructure spending to sustainable returns.
As investors weighed the latest quarterly updates from Alphabet and Amazon, attention also sharpened on whether the economics of AI are improving fast enough to justify the capital intensity seen across the sector. The reports raised questions about returns on invested capital as the industry continues to ramp spending for AI workloads.
AI capex expectations raise the bar for future results
JPMorgan Chase said capital expenditure at the five largest hyperscalers exceeded $400 billion in 2025 and is forecast to approach $900 billion in 2026. That is an upward revision from a $736 billion earlier estimate in the year, according to JPMorgan.
Looking beyond current investment cycles, JPMorgan also expects global AI capex to surpass $5.5 trillion by 2030. Despite the steep spending trajectory, JPMorgan market strategist Dubravko Lakos-Bujas argued that Wall Street may be too pessimistic about near-term monetization.
His view was that the market is effectively underwriting the “AI data center monetization” thesis, where elevated capex today should eventually translate into higher revenue, improved margins, and expanding cash flow.
Market reaction and what history says next
Pullbacks of this magnitude have been common for the Nasdaq. Over the last decade, the index has experienced a monthly decline of at least 5% 15 times, including October. Excluding the most recent month, that leaves 14 occurrences where the Nasdaq subsequently posted a 12-month gain on average.
Data cited by the article indicates the Nasdaq has typically recovered within a year after similar drawdowns. The average 12-month return following monthly declines of 5% or more was reported at 24%, with a range that included periods of strong rebounds as well as months where performance was initially negative.
However, the current episode carries a key nuance: the AI spending debate is tightly linked to profitability metrics. The article pointed out that Alphabet and Amazon reported negative free cash flow in the most recent quarter, prompting investors to focus on how quickly AI infrastructure spending could improve cash generation.
While that single quarter of data may not fully capture longer-term operating trends, it has been enough to pressure valuations for the index’s growth-heavy constituents.
Bigger picture for investors
The October selloff underscores how markets are responding to the intersection of AI capex, corporate cash flow, and expectations for monetization. For investors, the next test is likely to be whether subsequent earnings and guidance show that rising infrastructure spending is leading to measurable improvements in revenue growth, margins, and free cash flow.
Given the historical pattern of rebounds after similar monthly losses, the question for markets going forward is not only whether the Nasdaq can recover, but whether the AI investment cycle can demonstrate financial payoff quickly enough to prevent further de-rating.
Investors will likely look to upcoming earnings updates from major technology and AI-linked companies, along with broader market signals tied to interest-rate expectations and growth sentiment. With AI spending still accelerating, the key watch points remain cash flow trends and management commentary on AI infrastructure ROI.
