Wall St slides as Meta, Microsoft warnings trigger fears over AI trade
New York: Wall Street experienced a significant decline on Thursday following cautionary statements from Microsoft and Meta Platforms regarding the rising costs of artificial intelligence. This dampened the enthusiasm for megacap stocks, which have been the main drivers of the market's rally this year.
Shares of Facebook-owner Meta Platforms plummeted by 4%, while Microsoft saw a decline of 5.6%, despite both companies surpassing earnings expectations in their reports following Wednesday's closing bell.
Market Disappointment
Chief Global Strategist for LPL Financial, Quincy Krosby, commented, “The market, overall, has been disappointed with mega tech guidance, especially concerning Meta’s AI expenditures and the slower-than-expected integration of AI into Microsoft’s cloud platform.”
Additionally, the yield on the benchmark 10-year Treasury note rose above 4.3%, adding further pressure on equities.
Inflation Concerns
The Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation measure, rose by 0.2% in September, meeting economists' expectations. However, the core figure showed a year-over-year increase of 2.7%, slightly above the forecast of 2.6%. Consumer spending also rose slightly more than anticipated.
Following the data release, traders maintained their expectations for a 25-basis-point rate cut in the Fed's November meeting.
AI Investments Impact Profitability
Both Microsoft and Meta noted that their capital expenses were increasing due to investments in AI, potentially affecting profitability. This comes at a time when investors are seeking rapid returns on the substantial funds already invested.
Other top tech stocks, known as the "Magnificent Seven," also experienced declines. Amazon.com dropped by 3.4%, and Apple saw a 1.4% decrease ahead of their quarterly results, scheduled for release after the market close.
Challenges in Pleasing Investors
Although the surge in AI-driven tech stocks led Wall Street to record highs this year, investor optimism has led to stocks trading at very high valuations. The warnings from Meta and Microsoft highlight the difficulties companies encounter in meeting investor expectations.
Market Performance
The Dow Jones Industrial Average declined by 355.91 points, or 0.84%, to 41,785.63. The S&P 500 lost 92.83 points, or 1.60%, closing at 5,720.84, while the Nasdaq Composite dropped by 464.96 points, or 2.50%, to 18,142.97.
