[New York Stocks] Alphabet Plunges 12%... Nasdaq Falls 1.2% Amid Tech Sell-Off

Industrial giant Caterpillar plunges more than 10%

U.S. stocks were broadly lower on October 29 (local time), with all three major indexes declining. Alphabet, Google's parent company, reported third-quarter results that fell short of market expectations, renewing concerns about the profitability of investments in artificial intelligence (AI). The possibility that the Federal Reserve (Fed) could raise interest rates again before year-end was also seen as weighing on the market.

As of 10:01 a.m. in New York, the Dow Jones Industrial Average was down 153.47 points, or 0.29%, from the previous trading session, at 52,321.63. The S&P 500, which is weighted toward large-cap stocks, was down 28.45 points, or 0.37%, at 7,715.53, while the Nasdaq Composite, which is weighted toward technology stocks, was down 336.33 points, or 1.27%, at 26,213.51.

Weak earnings from major technology companies dragged the indexes lower. Alphabet, Google's parent company, saw its shares plunge 12% after both its third-quarter revenue and adjusted earnings per share (EPS) fell short of market expectations. Investor sentiment was particularly dampened by its third-quarter free cash flow (FCF), which came in at negative $9.07 billion.

Alphabet kept its full-year capital expenditure (CAPEX) forecast at $195 billion to $205 billion. Analysts said that results falling short of expectations despite massive investment in AI infrastructure had prompted investors to question whether AI spending would generate sufficient returns.

Richard Reil, an executive at Questar Capital Partners, told Bloomberg News, "Technology companies are now being judged on their AI spending alone, and the winners and losers are beginning to emerge. Investors are starting to identify which companies are investing rationally in AI and which are not."

Microsoft (MS) reported first-quarter fiscal-year revenue and EPS that exceeded market expectations, but its shares remained little changed. Growth in its Azure cloud service drove the improvement in results, but capital expenditure came in lower than expected, raising concerns about delays in expanding data center infrastructure.

AI-related stocks also fell across the board. The iShares Semiconductor ETF, which invests in U.S. semiconductor companies, dropped more than 2%, while the Roundhill Memory ETF, which invests in memory chip companies, fell more than 3%. AI-related stocks, which had recently rebounded, came under renewed selling pressure.

Industrial giant Caterpillar also plunged 10%. Its third-quarter revenue and EPS topped market forecasts, but its shares fell sharply after revenue in its construction equipment business came in slightly below expectations.

Economic data released that day showed both solid growth in the U.S. economy and persistent inflationary pressure. According to the U.S. Department of Commerce, the preliminary estimate of U.S. gross domestic product (GDP) growth for the third quarter was an annualized 3.4% quarter over quarter. That was above the market forecast of 3.2% and 1.2 percentage points higher than the second-quarter growth rate of 2.2%. With consumer spending and business investment supporting growth, analysts said the U.S. economy was continuing to expand steadily despite high interest rates.

Meanwhile, the personal consumption expenditures (PCE) price index, the inflation gauge favored by the Fed, rose 0.5% in September from the previous month. The increase matched market expectations but was higher than the previous month's 0.3% rise. The year-over-year increase also accelerated to 3.6%, up from 3.4% in August. The core PCE price index, which excludes volatile food and energy prices, rose 0.3% month over month and 3.1% year over year.

Markets are watching for the possibility that the Fed will raise its benchmark interest rate again in December. Earnings reports from Amazon and Intel, scheduled for release after the market closes that day, are also seen as key factors that could shape investor sentiment toward AI-related investments.

This content was produced with the assistance of AI translation services.