[New York Stock Market] Nasdaq Falls 1.3% on Alphabet Shock... AI Investment Concerns Resurface

Alphabet Plunges on Weak Earnings and Contingent Commitments

Sell-Off Spreads Across Tech Stocks

September PCE Rises Year Over Year... Odds of Further Tightening Increase

U.S. stocks closed lower across the board on Oct. 29 (local time). Alphabet shares plunged as disappointing results and additional investment commitments reignited concerns about the profitability of AI investments, spreading selling across the broader technology sector. The sharp acceleration in the U.S. personal consumption expenditures (PCE) price index in September also weighed on investor sentiment, as it raised the likelihood of another rate hike this year.

The Dow Jones Industrial Average closed at 52,342.56, down 132.54 points (0.25%) from the previous trading day. The S&P 500 fell 23.59 points (0.30%) to 7,720.39, while the tech-heavy Nasdaq Composite dropped 365.12 points (1.38%) to 26,184.72.

New York Stock Exchange. New York, U.S. = Correspondent Hwang Yunju

Market sentiment deteriorated amid Alphabet's plunge. After reporting third-quarter results after the market closed the previous day that fell short of expectations, Alphabet shares plunged more than 12% from the start of trading.

Alphabet's third-quarter revenue rose 25% year over year to $127.6 billion but fell short of forecasts. Earnings per share (EPS) came in at $2.12, well below the market estimate of $2.99. Concerns about slowing growth also surfaced as revenue from search advertising, a key source of income, increased just 12% year over year.

Alphabet also disclosed additional contingent commitments totaling about $98.5 billion, further dragging down its shares. According to Bloomberg, the company's third-quarter report showed that AI-related contingent commitments had risen by $23 billion from the previous quarter to $98.5 billion. These commitments included guarantees for data center leases and power infrastructure. Renewed concerns about the profitability of AI investments triggered broader selling across technology stocks and dragged down the Nasdaq.

Microsoft's capital spending falls short of forecasts... Caterpillar also plunges on weak revenue

Microsoft (MS). Reuters-Yonhap News Agency.

Microsoft (MS) reported results that beat market expectations, buoyed by strong cloud business, but its shares edged lower. The company's capital expenditures and finance leases totaled $45.2 billion in the first quarter of its fiscal year, below the market forecast of $50.67 billion. Free cash flow remained positive at $18.63 billion.

Microsoft's lower-than-expected capital spending also weighed on the shares of data center infrastructure providers. AI cloud infrastructure companies CoreWeave and Nebius fell about 5% and more than 5%, respectively. Market concerns arose that data center construction and infrastructure deliveries could be delayed compared with initial expectations.

AI semiconductor stocks also weakened. The iShares Semiconductor ETF, which tracks U.S. semiconductor companies, fell more than 1%, while the Roundhill Memory ETF, which invests in memory chipmakers, dropped more than 4%.

Art Hogan, chief market strategist at B. Riley Wealth Management, told CNBC, "Concerns about the technology sector as a whole have eased compared with before, but investors are being much more selective." He added that individual companies' earnings reports could have a significant impact on the market in the current environment.

Industrials also underperformed. Caterpillar, the U.S. construction equipment maker, plunged more than 9%, recording its biggest one-day decline since March 2020. Although its third-quarter revenue and net income beat market expectations, revenue from its construction segment fell slightly short of forecasts, weighing on the shares.

PCE price index rises from a year earlier... Likelihood of further tightening gains ground

The inflation data released that day also weighed on stocks. According to the U.S. Department of Commerce, the PCE price index rose 0.5% in September from the previous month, in line with market expectations. Its year-over-year increase 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.

The acceleration in the PCE price index, the inflation gauge favored by the U.S. Federal Reserve (Fed), lent further weight to the possibility of another rate hike.

The Fed held its benchmark interest rate steady at 3.75%-4.00% at its regular Federal Open Market Committee (FOMC) meeting the previous day. After raising rates by 0.25 percentage points in September, it opted to wait and see for now. In a statement, the Fed said inflation remained elevated and that it would review additional economic data before making future policy decisions.

According to CME FedWatch, markets are pricing in an over 80% chance that the Fed will raise its benchmark rate by 0.25 percentage points in December. With doubts about the profitability of AI investments growing and inflationary pressures persisting, caution is mounting on Wall Street.

Oil prices fell amid signs that the United States and Iran may resume diplomatic negotiations. West Texas Intermediate (WTI) crude for December delivery settled at $102.00 per barrel on the New York Mercantile Exchange, down 0.76% from the previous session. Brent crude for December delivery fell 0.38% from the previous session to $114.88 per barrel on the ICE Futures Exchange.

Gold prices fell. Gold futures for December delivery settled at $4,031.40 per ounce on the New York Mercantile Exchange, down 0.5% from the previous trading day. Spot gold also fell more than 1%. The decline followed an acceleration in U.S. inflation, which increased the likelihood of another Fed rate hike in December.

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