The last two weeks were supposed to bring some clarity to a stock market wobbling on a series of risks, particularly doubts about heavy spending on artificial intelligence, as a series of technology giants reported their earnings.

After seeing the numbers, the outlook is clearer. Unfortunately for Wall Street, it’s also considerably darker.

While earnings from the big AI spenders showed cloud-computing is still booming, investors weren’t impressed. Rather, they were focused on the mounting costs of the data center build out that’s eating into free cash flows, which triggered a steep selloff on Friday that pushed the tech-heavy Nasdaq 100 Index’s October decline to 6.7%, its worst month since the tariff freakout in March 2025.

“This is a reflection of investors becoming more discerning, because I don’t think every hyperscaler is going to be a winner moving forward,” said Anthony Saglimbene, chief market strategist at Ameriprise. “It is all going to come down to, what are companies spending, how much are they getting back, and how deep are their moats, such that they can continue growing revenue.”Alphabet Inc. shares plunged 13% on Thursday, their worst day ever, after Google’s parent reported disappointing sales in its core search business and a second straight quarter with negative free cash flow, something it has never done as a public company. Amazon.com Inc. followed with a report showing significantly worse negative free cash flow than analysts had anticipated due to higher capital spending and the slowest growth in its e-commerce business in three years. The stock sank 5.6% on Thursday and Friday, its worst two-session performance since July. “Investors are assigning more risk to the companies that are cash flow negative,” said Brian Mulberry, chief market strategist at Zacks Investment Management.

“I do think that you’re seeing investors vote with their wallet in ranking what quality means to them.”The AI trade actually entered the week on the back foot, as Meta Platforms Inc. showed a sizable jump in its capital spending plans for the year in its earnings report on Oct. 21. Since then, the stock is down 12%. A gauge of the company’s credit risk jumped to the highest on record. And late Friday, S&P Global Ratings lowered the credit rating outlook for Facebook’s parent to negative from stable, noting that it’s unclear when Meta’s expenditures will generate revenue that exceeds the rising costs.

“Investors are starting to reward those companies that are demonstrating the ability to convert that spend into revenue and actual return on that investment, and punishing those that aren’t necessarily yet, or they’re increasing that spend,” said Chris Osmond, chief investment officer for Fifth Third Wealth Advisors.

The pessimism has reached a point where even companies that deliver stable free cash flow — a measure of cash generated from operations after accounting for capital spending — are getting hit. Microsoft Corp. reported faster-than-expected revenue growth in its Azure cloud business and free cash flow of nearly $19 billion. But its shares still got dragged down this week, falling 1.6% on Friday.

AI concerns go beyond megacaps. A disappointing quarterly sales forecast from software maker ServiceNow Inc. reignited fears about AI disruption and sent the stock tumbling a record 31% on Thursday. Meanwhile, Fortinet Inc. cut its forecast for services sales and triggered a selloff in cybersecurity stocks.

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There is perhaps no company that more embodies the contradictions of AI’s risks and rewards than Alphabet. Its results showed strong growth in AI search queries. But since Google collects lower fees for that traffic than on traditional searches, revenue from that segment disappointed. Search accounted for almost 56% of the company’s revenue last year, so a downturn is potentially cataclysmic.

Alphabet previously faced concerns that its market share within search could be vulnerable to competition from chatbots released by companies like OpenAI. While strong results in past quarters helped put those fears to bed, this report suggested Alphabet could be the architect of its own disruption.

Alphabet “is building infrastructure, but perhaps at the risk of cannibalizing its own business,” Saglimbene said. “The next leg of AI is going to be the ‘prove it’ stage. Because expectations are so high around the companies doing the building, every quarter is going to be a report card that either justifies the expectations or pushes back on them. When the narrative doesn’t meet expectations, the declines in stocks can be severe, as we’ve seen.”This earnings season has revived concerns about the threat of AI disrupting software, with offerings from companies like Anthropic and OpenAI potentially eroding their pricing power and margins.

So far this reporting season, 90% of software companies in the S&P 500 have beaten earnings expectations while just 70% have for revenue, according to data compiled by Bloomberg. Both represent a deterioration from last quarter, when fully 100% beat on profits while more than 80% topped the consensus for sales.

“The market is completely uneasy about what software companies are going to survive in an AI world,” said Ben Connard, chief investment officer at the Carnegie Investment Counsel. Several software stocks have gotten hit this earnings season after the companies gave tepid results or forecasts. In addition to ServiceNow and Fortinet, shares of communications software maker Twilio Inc. sank 18% on Friday after its forecast disappointed, which is “a clear concern,” as it “implies a sharp deceleration” from the third quarter, according to Bloomberg Intelligence.

The heavy spending on AI infrastructure continues to take a toll on free cash flow at megacap tech companies. Of the four hyperscalers, three of them — Amazon, Meta and Alphabet — posted free cash flow deficits in the quarter. Amazon’s negative free cash flow hit nearly $35 billion, compared with free cash flow of $430 million a year ago. Microsoft was the exception with positive free cash flow of $18.6 billion.

“We used to view tech in a particular way,” Ameriprise’s Saglimbene said. “They used to be asset-light companies that were cash-flow heavy and had very reliable growth. Now they’ve become asset heavy, the cash flow picture has changed, and in some cases the reliability of the growth has changed. All that warrants a different way of looking at them. You have to value them differently than you used to given the money being spent.”

Capital spending on data centers remains full speed ahead. Meta Platforms slightly raised its forecast for those expenditures this year, and its future spending commitments rose to $825 billion. While Microsoft’s capital expenditures in its fiscal first quarter fell short of expectations due to bottlenecks, the company said outlays would be heavier in the second half of its fiscal year, which ends in June. Meanwhile, Alphabet’s future spending obligations jumped to well over $1 trillion.

“I think demand for AI tools is still incredibly high, and that means we need the capex to be spent,” Zacks Investments’ Mulberry said. “But in the moment, we’ve now run up $800 billion in spending this year, and how do you monetize that? And when you do, does that turn into positive cash flow — meaning is it profitable?”