Nasdaq futures fell on Thursday as investors became concerned about the money major technology companies are spending on artificial intelligence (AI). Mixed quarterly results from Alphabet and Microsoft led investors to question whether heavy spending on AI would generate enough returns. Investors also focused on an upcoming US inflation report, which could influence the Federal Reserve's next interest rate decision.
Alphabet shares fell 10.5% in premarket trading on Thursday after the Google parent's latest results disappointed investors. The company reported weaker-than-expected performance in its main search advertising business.
Alphabet shares fall as AI spending rises
Investors were also concerned about the sharp increase in cash spending as Alphabet continued investing heavily in AI infrastructure. The spending has raised questions about how quickly the company can turn its AI investments into higher revenue and profits, according to Reuters.
Also read: Google, Microsoft, Amazon face investor pressure to justify massive AI spending as earnings loom
Jeremy Saltzberg, vice president and senior investment officer at Check Capital Management, said investors were increasingly examining the time needed to make money from AI compared with the amount companies were spending. He said some investors were no longer allowing major cloud and technology companies, known as hyperscalers, to spend unlimited amounts without questioning their decisions, as cited by Reuters.
Microsoft shares rise on strong cloud growth
Microsoft shares moved in the opposite direction, rising 3.5% in premarket trading on Thursday. The company reported stronger-than-expected cash flow and forecast solid growth in its cloud business. The results offered investors fresh evidence that Microsoft's heavy investments in AI could be paying off.
Software and chip stocks fall
{{/usCountry}}Microsoft shares moved in the opposite direction, rising 3.5% in premarket trading on Thursday. The company reported stronger-than-expected cash flow and forecast solid growth in its cloud business. The results offered investors fresh evidence that Microsoft's heavy investments in AI could be paying off.
Software and chip stocks fall
{{/usCountry}}Software company ServiceNow's shares dropped 19% after its third-quarter profit fell short of analysts' estimates. Cybersecurity company Zscaler and customer relationship management software maker Salesforce were among the stocks that traded lower, according to Reuters.
Weakness extended to the broader semiconductor sector, with several major chipmakers recording losses in premarket trading. Nvidia shares fell 1%. Advanced Micro Devices (AMD) dropped 3.3%. Intel shares declined 3.6%.
US inflation report in focus
Investors are waiting for the September Personal Consumption Expenditures (PCE) report, which is due later on Thursday. The PCE price index is the Federal Reserve's preferred measure of inflation. The report could help investors assess whether inflation is cooling enough for the central bank to reconsider its interest rate plans, according to Reuters.
Nasdaq futures fell as investors questioned whether Alphabet's heavy AI spending would deliver sufficient returns, while disappointing results from several software companies added to the pressure. Microsoft's stronger cash flow and cloud growth provided a contrasting signal, as investors also awaited US inflation data and further clues about the Federal Reserve's next interest rate move.