Is Alphabet’s selloff a warning for further volatility in AI next week?

Google parent Alphabet slid 7% on Thursday, dragging the Nasdaq down 2%, despite the tech giant reporting better-than-expected second-quarter revenue.

Thanks to 82% revenue growth in its cloud business, Alphabet posted Q2 revenue of $119.8 billion, ahead of forecasts for $116.9 billion and up 23% from the same period last year. Headline EPS was $9.11, boosted by equity gains, but adjusted EPS was $2.85, softer than the $2.89 forecast.

Huge AI spending & negative free cash flow

However, that wasn't the problem. Alphabet raised its capital expenditure forecast for the year to between $195 billion and $205 billion, up from its previous guidance of $180 billion to $190 billion. The sharp increase in spending revived concerns over capital discipline as Big Tech races to dominate artificial intelligence.

Alphabet also reported its first negative free cash flow—the cash left over after operating expenses and capital investment. It marks the first time the company has posted negative free cash flow since becoming a public company 22 years ago.

The results highlight the financial strain that soaring AI investment is placing on even one of the world's most profitable companies. With the full cost of Silicon Valley's AI leadership race still unknown, spending could rise even further.

The sharp sell-off in Alphabet's share price suggests investors are becoming increasingly impatient about when the huge investments will begin to translate into significantly stronger profits and returns.

Meta, Microsoft & Amazon report next week

Alphabet was the first of the megacap technology companies to report earnings. Meta, Microsoft and Amazon all report next week. Collectively, the four companies indicated in April that they planned to spend around $725 billion this year on their AI ambitions. If Alphabet is any indication, that figure could rise substantially by the end of next week, while the timeline for meaningful returns remains uncertain.

Given the market's sensitivity to rising AI spending, investor scrutiny is likely to intensify next week. Any further increases in capital expenditure guidance from the remaining megacap technology companies could put renewed pressure on the sector.

However, there is another side to the trade. Heavy investment by hyperscalers continues to benefit chipmakers and AI infrastructure companies. Intel rose 11% in pre-market trading after reporting its fastest revenue growth in 15 years, reinforcing expectations that demand for AI infrastructure remains exceptionally strong.

Nasdaq 100 technical analysis

The NASDAQ 100 breaks down out of the symmetrical triangle pattern, finding support at 28,230. The recovery from this level, however, faced rejection at the 50 EMA and horizontal resistance around 29,000, reinforcing the bearish view. However, the move lower once again found support at 28,250.

Sellers supported by the RSI below 50 will need to break below the 28,250 level to extend the bearish move and create a lower low. Below, here retention turns to 27,000, the round number, and the 200 SMA at 26,750. 

Should the 28,250 support hold, buyers would need to rise above the 29,000, the 50 EMA and horizontal support to put the Nasdaq pricing on a firmer footing. Above here, 30,000, the psychological level comes into focus ahead of 30,300, the July high, and 30,750, the record level.