The tech-heavy Nasdaq Composite index experienced a significant decline of 1.2% on Thursday, driven by Alphabet's disappointing quarterly results. The Google parent company's shares plummeted 11.7%, marking their steepest one-day fall on record. This decline was attributed to weaker-than-expected search advertising revenue and a substantial increase in AI-related spending, which led to a surge in cash burn.
The impact of Alphabet's results was felt across the market, with the Nasdaq-100 index poised to erase over $500 billion in value if current losses persist. Alphabet's market value is expected to decline by more than $464 billion, accounting for the majority of the Nasdaq-100's losses. Microsoft, another tech giant, fell 1.5% following reports that the company plans to raise at least $25 billion through a bond sale.
Trevor Slaven, global head of asset allocation at Barings, attributed the market's volatility to investor concerns about debt-financed spending on AI. While AI has the potential to drive economic growth, it also increases leverage and risk in the system. Slaven noted that the ecosystem surrounding AI buildout is increasingly reliant on debt financing, which can create manic depressive sentiment swings.
The Philadelphia SE Semiconductor index declined 0.9%, snapping its four-day winning streak. Other megacap stocks experienced mixed results, with Meta and Apple rising, while Amazon.com dropped 2.9% ahead of its quarterly earnings report. The Dow Jones industrial average fell 0.35%, while the S&P 500 lost 0.32%.
Despite the tech-related losses, market breadth was strong, with advancing issues outnumbering decliners on both the NYSE and Nasdaq. Eli Lilly, a pharmaceutical company, climbed over 6% to a record high after forecasting annual revenue above Wall Street estimates. Mastercard also rose 4.2% after beating third-quarter profit estimates.
Economic data released on Thursday showed that US inflation accelerated in September, and traders maintained their bets on a potential Federal Reserve interest rate hike in December. A separate reading revealed that the US economy grew at its fastest pace in a year in the third quarter. These developments contributed to the market's cautious sentiment.
Several companies, including Caterpillar, Fortinet, and ServiceNow, experienced significant declines after releasing their quarterly results. Marvell Technology slumped 11.6% following reports that the company was in advanced talks to acquire data centre optics maker Lumentum Holdings. Lumentum shares rose 3.5% in response to the news.
Key points
- Alphabet's disappointing quarterly results sparked concerns about AI costs
- Nasdaq Composite index declined 1.2% due to tech-related losses
- Market breadth was strong, with advancing issues outnumbering decliners
