Wall St set to drop as Meta, Microsoft cost warnings highlight AI trade risks
By Lisa Pauline Mattackal
(Reuters) -Wall Street was set to open lower on Thursday as warnings from Meta Platforms (NASDAQ:META ) and Microsoft (NASDAQ:MSFT ) about rising AI costs sobered some of the buzz around megacap stocks, which have been the market's primary driver this year.
Shares of Facebook-owner Meta dipped 1.4% and Microsoft fell 3.5% in premarket trading, despite both companies beating earnings estimates in results reported after the bell on Wednesday.
Meanwhile, the Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation metric, rose 0.2% in September, in-line with economists' expectation and supporting bets of a gradual easing of monetary policy by the U.S. central bank.
"Investors are pondering results from Microsoft and Meta more than the economic news," said Peter Cardillo, chief market economist at Spartan Capital Securities.
"Still, the inflation news could up the chances the Fed pauses next week. That could be on investors' mind and cause some more negativity in the medium term."
Data from the labor department showed the number of Americans filing new applications for unemployment fell to a more than expected 216,000 claims last week as distortions from hurricanes faded. Monthly nonfarm payrolls data is due on Friday.
Meta warned of "significant acceleration" in AI infrastructure investments. Microsoft predicted slower growth in its Azure cloud business, signaling that the company's already hefty AI investments were not enough to keep pace with capacity constraints.
The other so-called Magnificent Seven stocks also slipped, with Nvidia (NASDAQ:NVDA ) losing 1.1% and Alphabet (NASDAQ:GOOGL ) down 0.3%, giving up some gains after soaring in the previous session following upbeat results.
Amazon.com (NASDAQ:AMZN ) lost 1.3% and Apple (NASDAQ:AAPL ) dipped 0.1% ahead of quarterly results from both, due after market close.
Although betting on AI-driven tech stocks propelled Wall Street to record highs this year, investor exuberance has meant stocks are trading at incredibly expensive valuations. Meta and Microsoft's warnings point to the challenges companies face in pleasing investors.
"The market is unforgiving of any AI-related company that fails to significantly outperform," said Dan Coatsworth, investment analyst at AJ Bell.
"Meta is the latest stock to feel the wrath of investors, despite extending its track record of doing better than analyst forecasts on key financial measures."
S&P 500 e-minis were down 37.75 points, or 0.64%. Nasdaq 100 e-minis dropped 138.5 points, or 0.67% and Dow e-minis fell 220 points, or 0.52%
The VIX , Wall Street's "fear gauge", rose to a more than three-week high as investors brace for more volatility from corporate results, the upcoming U.S. presidential election and the central bank's November meeting in the next few weeks.
The benchmark index is set for its sixth straight month of gains in October, and the Nasdaq Composite is set to rise over 2%, though the Dow is on track to decline slightly.
In results-driven moves, e-commerce firm eBay (NASDAQ:EBAY ) fell 5.7% following downbeat revenue forecasts, while trading platform Robinhood (NASDAQ:HOOD ) slumped 9.1% after its third-quarter earnings missed expectations.
Uber Technologies (NYSE:UBER ) shares dropped 8.2% after the company forecast fourth-quarter gross bookings below expectations.
Estee Lauder (NYSE:EL ) plummeted 23.8% after the cosmetics company withdrew 2025 annual forecasts and cut its dividend.
Of the S&P 500 companies that have reported results so far, 77.4% have beaten analysts expectations, about in line with the 79% average beat rate of the past four quarters as per LSEG data as of Wednesday.
Source: Investing.com
