By Abigail Summerville
(Reuters) -U.S. stocks slumped on Thursday after Microsoft and Meta Platforms highlighted growing artificial intelligence costs that could affect their earnings, curbing enthusiasm for megacap stocks that have fueled the market rally this year.
Shares of Facebook-owner Meta Platforms dropped 4.5%, while Microsoft fell 5.6%, despite both companies beating earnings estimates in results reported after the bell on Wednesday.
Other so-called Magnificent Seven megacap technology stocks also slipped. Amazon.com fell 3.6% and Apple dropped 1.4% ahead of their quarterly results, due after the market close. Shares of Alphabet, which reported on Tuesday, fell 1.7%.
“You had three of the Magnificent Seven all say they basically have open-ended budgets for AI spend and investors don’t like to hear that,” said Carol Schleif, chief investment officer at BMO Family Office.
“The intermediate and longer-term implications of this buildout are really important for U.S. long-term growth and long-term productivity. … In the short run, investors are asking where’s the profit from it?”
Microsoft and Meta both said their capital expenses were growing due to AI investments, which could reduce profitability.
The benchmark 10-year Treasury note yield also rose, breaching 4.3%, further pressuring equities.
The Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation metric, rose 0.2% in September, in line with economists’ expectations. However, the core figure was 2.7% year-over-year, slightly above the 2.6% forecast, while consumer spending increased a little more than expected.
After the data, traders stuck to bets for a 25-basis-point rate reduction in the Fed’s November meeting.
“We do expect them to cut by a quarter next week because there is nothing in the data this week that should throw them off of that,” Schleif said.
By 2:15 p.m. ET (0815 GMT), the Dow Jones Industrial Average fell 275.71 points, or 0.65%, to 41,865.83. The S&P 500 lost 94.37 points, or 1.62%, at 5,719.29 and the Nasdaq Composite slid 480.17 points, or 2.58%, to 18,127.76.
The information technology sector slumped 3.4%, on track for its worst day since early September. Upbeat results from ConocoPhillips and Entergy lifted energy and utilities.
An index of chip stocks slumped 4.4%, led by a 19% loss in Monolithic Power Systems following its results. Nvidia lost 4.6%.
The VIX, Wall Street’s “fear gauge,” touched its highest since early September as investors braced for more volatility in the next few weeks from corporate results and the Nov. 5 U.S. presidential election followed by the Fed’s policy-setting meeting.
Estee Lauder plummeted 20.5%, on track for its worst day on record, after the cosmetics company withdrew its 2025 annual forecasts.
Shares of Uber Technologies plunged 11.4% after the ride-hailing company forecast fourth-quarter gross bookings below expectations.
Declining issues outnumbered advancers by a 2.24-to-1 ratio on the NYSE, and by a 2.65-to-1 ratio on the Nasdaq.
The S&P 500 posted 23 new 52-week highs and eight new lows while the Nasdaq Composite recorded 51 new highs and 138 new lows.
(Reporting by Abigail Summerville in New York; Editing by Richard Chang)
