Nasdaq falls as Alphabet set for record loss amid AI spending woes

NEW YORK: The tech-heavy Nasdaq fell more than 1 percent on Thursday as Alphabet’s results rekindled worries about ballooning AI costs, outweighing strength in other sectors, including financials and healthcare, as earnings continued to dominate investor focus.

Alphabet shares skid 11.7 percent, and were set for their steepest one-day fall on record, after the company reported disappointing search advertising results and a surge in cash burn as AI-related spending accelerated.

The Google parent is on track to lose more than USD464 billion in market value, accounting for most of the over USD500 billion the Nasdaq-100 was set to erase if current losses hold.

Microsoft fell 1.5 percent following media reports the company is planning to raise at least USD25 billion through a bond sale. The company on Wednesday delivered a big cash-flow beat and forecast strong cloud growth.

“The factors that are at play that’s creating these manic depressive sentiment swings is you have an ecosystem around the AI buildout that is increasingly debt financed,” said Trevor Slaven, global head of asset allocation at Barings.

“(While) it in many ways grows the potential economic profits over time… it also creates more leverage and just creates a bit more risk in the system as well.”

Investor enthusiasm for AI trade has been tempered this month by worries that debt-fueled spending will be harder to justify as borrowing costs climb. Anthropic’s disclosure of its US IPO filing on Monday offered a short-lived reprieve, before those fears resurfaced.

The Philadelphia SE Semiconductor index was down 0.9 percent, set to snap a four-day winning streak. Other megacaps were mixed, with Meta and Apple rising, while Amazon.com dropped 2.9 percent ahead of its quarterly earnings after markets close.

At 11:49 a.m. ET, the Dow Jones Industrial Average fell 182.81 points, or 0.35 percent, to 52,292.29. The S&P 500 lost 24.46 points, or 0.32 percent, to 7,719.52, while the Nasdaq Composite shed 319.78 points, or 1.20 percent, to 26,230.07.

Despite heavy tech-related losses, market breadth was strong as advancing issues outnumbered decliners by a 1.97-to-1 ratio on the NYSE and by 1.5-to-1 on the Nasdaq.

Eight of the 11 S&P 500 sectors were trading higher, with healthcare and financials leading the gains.

Drugmaker Eli Lilly climbed more than 6 percent to a record high after forecasting annual revenue above Wall Street estimate. Mastercard rose 4.2 percent after the payments processing firm beat third-quarter profit estimates.

Meanwhile, data on Thursday showed that US inflation accelerated in September. Money market data showed traders held onto their bets of the Federal Reserve hiking interest rates in December after it held rates steady on Wednesday. A separate reading showed US economy grew at its fastest pace in a year in the third quarter.