US stocks fell on Thursday as investors reassessed the scale of artificial intelligence spending by major technology companies and digested a fresh batch of corporate earnings and inflation data.
The declines followed the Federal Reserve’s decision to keep interest rates unchanged on Wednesday.
The Nasdaq Composite led losses, falling 1.38% to 26,184.72, as disappointing results from Alphabet weighed on technology and communication services stocks.
The S&P 500 declined 0.30% to 7,720.39, while the Dow Jones Industrial Average slipped 0.25% to 52,342.56.
In contrast, the small-cap Russell 2000 advanced, suggesting that weakness in technology stocks did not extend across the entire market.
Investors also reassessed semiconductor companies after the sector’s recent gains.
The semiconductor index ended its four-day winning streak as markets became more selective about companies’ ability to finance their AI infrastructure ambitions and generate returns from those investments.
Alphabet sell-off weighs on technology stocks
Alphabet shares plunged 13% after the Google parent missed analysts’ expectations for third-quarter adjusted earnings per share and revenue.
The company also reported negative free cash flow of $9.07 billion, highlighting the financial pressure associated with its AI investments.
Alphabet maintained its full-year capital expenditure forecast of $195 billion to $205 billion.
However, the combination of weaker-than-expected results and substantial spending reinforced investor concerns about the cost of competing in the AI market.
Other technology and infrastructure stocks also declined. Microsoft shares fell nearly 1%, reversing their initial gains despite stronger-than-expected quarterly earnings and 48% growth in its Azure cloud business.
Microsoft’s lower-than-expected capital expenditure also weighed on cloud infrastructure providers. CoreWeave shares fell 3%, while Nebius declined more than 5%, as investors considered the implications of delayed data-centre capacity deliveries.
The semiconductor and memory sectors also retreated, with the iShares Semiconductor ETF falling more than 2% and the Roundhill Memory ETF losing more than 4%.
Inflation data complicates Federal Reserve outlook
The latest market declines came a day after the Federal Reserve held its benchmark interest rate between 3.75% and 4%, as widely expected.
Policymakers said inflation remained elevated and indicated that they needed more economic information before deciding on their next move.
Thursday’s economic releases showed that US economic growth accelerated more than expected in the third quarter.
However, inflation pressures also strengthened, partly reflecting an oil supply disruption linked to the war.
The September personal consumption expenditures price index, the Fed’s preferred inflation gauge, showed that monthly price growth matched expectations, while the annual rate came in slightly below Wall Street forecasts.
The combination of resilient economic growth and persistent inflation leaves investors assessing the outlook for interest rates alongside the potential impact of higher energy costs.
Corporate earnings deliver mixed results
Corporate earnings provided a mixed picture beyond the technology sector.
Of the 253 S&P 500 companies that had reported results, 81% had exceeded analysts’ expectations, according to LSEG data.
Analysts expected aggregate third-quarter earnings growth of 31% year over year.
Caterpillar shares fell 9% despite better-than-expected quarterly revenue and earnings, as sales in its construction industries business came in slightly below estimates.
Eli Lilly shares advanced after the drugmaker raised its revenue outlook on strong demand for weight-loss treatments.
Ford gained following a third-quarter revenue beat, while Merck rose after exceeding earnings expectations on sales of Keytruda and Gardasil.
Software stocks were particularly weak, with Fortinet and ServiceNow each falling more than 20% after their quarterly results.
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