On Thursday, major U.S. stock indexes ended the day in the red as Microsoft and Meta Platforms revealed rising costs associated with artificial intelligence that could impact their profitability, dampening the excitement surrounding megacaps that have driven this year’s market surge.
The stocks of Facebook’s parent company Meta Platforms and Microsoft experienced declines, even though both firms surpassed earnings projections in their reports released after the market closed on Wednesday.
Other prominent technology stocks, referred to as the Magnificent Seven, also saw a decline. Amazon.com and Apple slipped ahead of their quarterly results, which are set to be announced after market hours. Shares of Alphabet, which released results on Tuesday, also weakened.
“Three of the Magnificent Seven indicated that they essentially have unlimited budgets for AI spending, and investors are not pleased with that news,” stated Carol Schleif, Chief Investment Officer at BMO Family Office.
“The longer-term consequences of this expansion are crucial for the future growth and productivity of the U.S. … In the immediate term, investors are questioning where the profits will come from,” she added.
Both Microsoft and Meta acknowledged that their capital expenditures are increasing due to investments in AI, which could potentially hinder their profitability.
Preliminary figures show that the S&P 500 dropped 110.39 points, or 1.90%, closing at 5,703.28 points, while the Nasdaq Composite fell 522.07 points, or 2.81%, to 18,085.86. The Dow Jones Industrial Average decreased by 380.02 points, or 0.93%, ending at 41,761.52.
The Personal Consumption Expenditures price index, which is the Federal Reserve’s favored gauge of inflation, increased by 0.2% in September, matching economists’ predictions. However, the core figure rose to 2.7% year-over-year, slightly above the anticipated 2.6%, while consumer spending grew a bit more than had been expected.
After the release of this data, traders maintained their positions on a 25-basis-point rate cut anticipated at the Fed’s November meeting.
“We do foresee a quarter-point cut next week since this week’s data does not provide any reason to change that expectation,” Schleif remarked.
The information technology sector led the declines, although positive earnings from ConocoPhillips and Entergy provided a boost to energy and utility stocks.
An index tracking semiconductor stocks fell sharply, particularly due to the steep drop in shares of Monolithic Power Systems after the manufacturer of power control products and vehicle semiconductors released its financial results. Nvidia also experienced a decline.
The VIX, often referred to as Wall Street’s “fear gauge,” edged higher as investors prepared for increased volatility in the coming weeks due to corporate earnings reports and the upcoming Nov. 5 U.S. presidential election, followed by the Fed’s policy meeting.
Estee Lauder saw a significant drop, on pace for its worst trading day ever, following the cosmetics company’s withdrawal of its annual forecasts for 2025.
Shares of Uber Technologies plummeted after the ride-hailing service projected fourth-quarter gross bookings will be below expectations.
