Key insights
- US stocks are set for a lower open as Alphabet's disappointing search advertising results and increased AI spending fears led to an 11.5% premarket slide in its shares. This overshadowed Microsoft's strong cloud growth forecast, though its stock pared gains on news of a large bond sale. Investors are also assessing inflation data and economic growth figures amid ongoing concerns about AI cost sustainability and borrowing expenses.
By Shashwat Chauhan and Utkarsh Hathi
Oct 29 (Reuters) - US stocks were on track to open lower on Thursday as Alphabet’s results rekindled worries about soaring AI costs, while investors assessed fresh inflation data following the Federal Reserve’s decision to keep interest rates unchanged.
Alphabet shares slid 11.5% in premarket trading, putting the company on track to lose more than $450 billion in market value if losses hold, after reporting disappointing search advertising results and a surge in cash burn as AI-related spending accelerated.
The Google parent’s decline accounted for most of the over $660 billion in market value that the Nasdaq-100 was on track to erase if current losses hold.
"The positive AI effects must stay intact for years to come, or investors in Alphabet (and other hyperscalers) will eventually re-rate the multiples as the bottom-line profits fade," said Anders Bylund, a tech analyst at The Motley Fool.
Microsoft, however, climbed 1.8% after the company delivered a big cash-flow beat and forecast strong cloud growth. Although, the stock pared gains following media reports the company is planning to raise at least $25 billion through its first US investment-grade bond sale in more than nine years.
Investor enthusiasm for AI trade has been tempered this month by worries that debt-fueled spending will be harder to justify as borrowing costs climb. Anthropic’s disclosure of US IPO filing on Monday offered a short-lived reprieve, before those fears resurfaced.
Meanwhile, data on Thursday showed the Personal Consumption Expenditures Price index rose in line with the estimates of economists polled by Reuters. A separate reading showed the US economy grew faster than expected in the third quarter.
"The combination of still very strong and resilient economic growth, together with inflation and prices moving further away from the Fed’s target, reinforce the expectation that October was a skip rather than a hold for the Fed," said Angelo Kourkafas, senior global investment strategist at Edward Jones.
The Fed on Wednesday held interest rates steady, as expected, opting to delay any changes to borrowing costs until after next week’s US midterm elections.
Traders widely expect the US central bank to hike rates during its next meeting in December, according to data compiled by LSEG.
At 08:48 a.m. ET, Dow E-minis were down 129 points, or 0.24%, S&P 500 E-minis were down 31.5 points, or 0.4%, and Nasdaq 100 E-minis were down 366 points, or 1.22%.
Other stock movers include cybersecurity firm Fortinet, down 26.1% after reporting third-quarter results. Software maker ServiceNow dropped 18.7% after missing third-quarter profit estimates. The results also weighed on broader software-related companies.
Caterpillar declined 11.4% after the company kept its annual sales forecast unchanged, raising questions over how long the data-center boom can drive growth for power-generation equipment, while drugmaker Eli Lilly climbed 5.6% after forecasting annual revenue above Wall Street estimate.
Marvell Technology eased 12.1% after media reports said the company was in advanced talks to buy data-center optics maker Lumentum Holdings. Lumentum shares rose 7.1%.
The broader semiconductor segment was also trading lower, with Nvidia down about 0.8%, AMD sliding 2.7% and Intel off 3.3%.
Intel and Amazon are some of the major technology companies scheduled to report after markets close on Thursday.
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