Meta shares dropped 7% on October 22 after the company reported third-quarter capital expenditures of $34.9 billion, which exceeded its operating cash flow. Despite a 26% increase in sales that surpassed revenue estimates, the market reaction highlighted investor sensitivity to AI-related spending levels.
The broader tech sector faces similar scrutiny as Microsoft, Alphabet, Amazon, and Intel prepare to release their earnings. These four companies account for approximately 15% of the Nasdaq 100 index, which has declined by roughly 7% during the current month. Analysts note that investors currently penalize companies regardless of whether they increase or decrease capital spending.
MetLife Investment Management strategist Drew Matus suggests that companies face challenges in executing their announced budgets due to requirements for labor, equipment, and land. Meanwhile, Meta has introduced a new class of nonvoting Class C stock, and reports indicate that management may consider an equity raise.
Market attention is also focused on the Federal Reserve, which is scheduled to meet on October 27 and 28. Following a rate hike in September to a range of 3.75% to 4%, traders are adjusting expectations for future policy moves. Matus anticipates that the Federal Reserve may pause rate adjustments until December.
