The Nasdaq Composite fell more than 1% on Thursday as Alphabet's disappointing search advertising results and rising artificial intelligence spending revived concerns about whether massive investments in the technology will deliver adequate returns. Software stocks also came under pressure, adding to the technology sector's losses, Reuters reported.
Alphabet shares plunged 13%, putting the Google parent on track for its steepest one day decline on record. If the losses held, the company was set to shed more than $500 billion in market value, accounting for most of the over $693 billion that the Nasdaq 100 was poised to lose.
The sell-off followed Alphabet's report of a surge in cash burn as AI related spending accelerated, alongside disappointing search advertising results.
For live updates on US Markets, click here
"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, tech analyst at The Motley Fool.
At 9:56 a.m. ET, the Nasdaq Composite was down 436.54 points, or 1.64%, at 26,117.47. The S&P 500 fell 0.51% to 7,704.55, while the Dow Jones Industrial Average lost 0.31% to 52,311.92.
Software stocks deepen technology sell-off
Concerns extended beyond the largest technology companies, with software stocks sliding after quarterly results from Fortinet and ServiceNow. Cybersecurity firm Fortinet dropped 21.7% after reporting its third quarter results, while ServiceNow tumbled 23.3% after missing third quarter profit estimates.
The Philadelphia Semiconductor Index fell 1.8%, snapping a four session winning streak. Marvell Technology declined 12.8% following media reports that it was in advanced talks to acquire data centre optics maker Lumentum Holdings. Lumentum shares gained 3.4%.
Microsoft slipped 0.5% following media reports that it was planning to raise at least $25 billion through its first US investment grade bond sale in more than nine years. The decline came a day after the company reported a strong cash flow performance and forecast robust cloud growth.
Investor enthusiasm for AI has weakened this month as concerns grow that debt funded spending could become harder to justify amid rising borrowing costs. Anthropic's disclosure on Monday that it had filed for a US initial public offering offered temporary relief before worries resurfaced.
Inflation data and Fed outlook in focus
Investors also assessed fresh economic data following the Federal Reserve's decision to leave interest rates unchanged on Wednesday.
The Personal Consumption Expenditures Price Index rose in line with economists' estimates in a Reuters poll, while separate data 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 opted to delay changes to borrowing costs until after next week's US midterm elections. Traders widely expect the central bank to raise rates at its December meeting, according to LSEG data.
Elsewhere, Eli Lilly shares climbed more than 8% after the drugmaker forecast annual revenue above Wall Street estimates. Caterpillar fell 8% after maintaining its annual sales forecast, raising questions about how long data centre demand can sustain growth in power generation equipment, Reuters reported.
