US stocks slide as Google parent's revenue miss revives AI spending jitters

Why This Matters

Key context: <p>US stock prices retreated on Thursday, with investors reassessing big tech’s massive AI spending spree as they digested high-profile earnings, crucial inflation data and the US Federal Reserve’s policy decision.</p> <p>All three major US stock indexes were in negative territory, with the Nasdaq dragged sharply lower by tech and tech-related megacaps in the wake of Alphabet’s disappointing quarterly results released late Wednesday.</p> <p>In contrast, the smallcap Russell 2000 advanced 0.8 per cent.</p> <p><a href="https://www.dawn.com/news/1982621">Semiconductor</a> stocks were poised to snap their four-day winning streak, dropping 2.0pc as investors sought to distinguish between companies that can fund their lofty <a href="https://www.dawn.com/news/2039987">AI ambitions</a> from those that burn through cash and borrow funds to realise their ambitions.</p> <p>Alphabet was in the latter camp following its quarterly report released late on Wednesday. The Google parent’s revenue miss was compounded by its accelerated AI-related cash burn. Its shares slid 13.2pc.</p> <figure class='media w-full w-full media-- media--embed ' data-original-src='https://www.youtube.com/watch?v=eXwOQWI8_hk'> <div class='media__item media__item--youtube '><iframe src='https://www.youtube.com/embed/eXwOQWI8_hk?enablejsapi=1&controls=1&modestbranding=1&rel=0' loading='lazy' allow='accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture' allowfullscreen='' frameborder='0' scrolling='no' width='100%' height='100%'></iframe></div> </figure> <p>“A risk-off day like this, with small caps outperforming, is a good sign that thus far the market’s interpretation of cracks in the AI story doesn’t mean cracks in every corner of the market,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.</p> <p>“There’s plenty of other places to go with your money outside of the AI trade that have pretty decent prospects.”</p> <p>On Wednesday, Federal Reserve policymakers chose to hold US rates steady, acknowledging that while price pressures remain “elevated”, the central bank will decide on its next move as it “accumulates more information”.</p> <p>A raft of economic data released on Thursday answered that call, with a first take on third-quarter GDP that showed the US economy grew at a faster-than-expected pace in the third quarter, while price growth continued to gain heat with a war-related <a href="https://www.dawn.com/news/2029102">oil supply crunch</a> feeding into broader, systemic inflation.</p> <figure class='media w-full sm:w-1/2 media--right media--embed media--uneven' data-original-src='https://www.dawn.com/news/2039518'> <div class='media__item media__item--newskitlink '> <iframe class="nk-iframe" width="100%" frameborder="0" scrolling="no" style="height:250px;position:relative" src="https://www.dawn.com/news/card/2039518" sandbox="allow-same-origin allow-scripts allow-popups allow-modals allow-forms"></iframe></div> </figure> <p>The Dow Jones Industrial Average fell 315.36 points, or 0.59pc, to 52,163.07, the S&amp;P 500 lost 48.73 points, or 0.63pc, to 7,695.25 and the Nasdaq Composite lost 441.15 points, or 1.66pc, to 26,108.35.</p> <p>Among the 11 major sectors in the S&amp;P 500, communication services and tech were down the most, while healthcare led the gainers.</p> <p>Third-quarter earnings season has crossed the halfway point, with 253 of the companies in the S&amp;P 500 having reported. Of those, 81pc have beaten analyst expectations, according to the most recent LSEG data.</p> <p>Analysts now expect aggregate third-quarter S&amp;P 500 earnings growth of 31.0pc, year-on-year, per LSEG.</p> <p>Caterpillar topped quarterly profit estimates but left its growth targets unchanged. The heavy equipment maker’s shares tumbled 9.5pc.</p> <p>Eli Lilly jumped 6.3pc after the drugmaker lifted its revenue outlook on the strength of weight-loss drug sales.</p> <p>Ford gained 2.9pc following the automaker’s third-quarter revenue beat.</p> <p>Merck beat earnings expectations on the strength of its cancer drug Keytruda and its HPV vaccine Gardasil. The drugmaker’s shares advanced 4.4pc.</p> <p>Software stocks were broadly weak. Fortinet and ServiceNow dropped more than 20pc each after their quarterly results.</p> <p>Marvell Technology slumped 12.8pc after media reports said the company was in advanced talks to buy data-centre optics maker Lumentum Holdings. Lumentum shares rose 2.0pc.</p> <p>Amazon’s shares were off 3.9pc ahead of its earnings report, expected after the closing bell.</p> <p>Advancing issues outnumbered decliners by a 1.59-to-1 ratio on the NYSE. There were 113 new highs and 155 new lows on the NYSE.</p> <p>On the Nasdaq, 2,416 stocks rose and 2,221 fell as advancing issues outnumbered decliners by a 1.09-to-1 ratio.</p> <p>The S&amp;P 500 posted 19 new 52-week highs and six new lows, while the Nasdaq Composite recorded 81 new highs and 131 new lows.</p> This development from dawn.com highlights ongoing changes in the sector.