Stock market today: Nasdaq, S&P 500 futures sink as Meta, Microsoft revive Big Tech's AI spending worries
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The Nasdaq led a tumble in US stock futures on Thursday as Meta (META) and Microsoft (MSFT) earnings sparked worries about prospects for Big Techs amid rising AI costs.
Contracts on the tech-heavy Nasdaq 100 (NQ=F) sank 0.9%, while S&P 500 futures (ES=F) fell over 0.7%. Dow Jones Industrial Average futures (YM=F) dropped roughly 0.5%, on the heels of losses for the major gauges.
Optimism for a Big Tech boost to stocks took a knock as investors digested Meta and Microsoft's quarterly reports. While the results beat Wall Street estimates, both companies flagged that they will step up already high spending on AI infrastructure.
Concerns that would put pressure on profitability helped send shares in both Meta and Microsoft about 4% lower in premarket trading.
The unsettled mood spread to Amazon (AMZN) and Apple (AAPL), which round off this week's "Magnificent Seven" earnings with reports after the close on Thursday. Shares in the tech megacaps stepped lower in premarket.
On Thursday morning investors received the latest reading on the Personal Consumption Expenditures index, the last key inflation input for the Federal Reserve before its policy decision next week. Annual "core" PCE in September — which excludes food and energy prices — came in at 2.7%, more than 2.6% expected by economists, and in line with 2.7% seen in August.
Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards
Initial jobless claims came in at 216,000, versus estimates for 230,000. Investors were paying close attention to the data after an October surge in private payrolls muddied the picture ahead of the crucial monthly jobs report due for release on Friday.
LIVE 3 updatesMicrosoft and Meta fall as spooked investors weigh hefty AI bills
Meta (META) and Microsoft (MSFT) sank premarket as investors weighted their hefty AI expenditures against the time it will take to generate a return on their investment.
Meta fell as much as 4.7% before paring losses, while Microsoft was down 3.6%. During their earnings reports the night before, both companies beat Wall Street’s expectations, but Microsoft’s weaker-than-expected sales guidance for the current quarter and Meta’s raised outlook on capital expenditures appeared to spook investors.
Meta raised the lower end of its guidance range for full year spending from $37 billion to $38 billion, and Chief Financial Officer Susan Li said the company expects “significant capital expenditure growth in 2025.” Microsoft indicated in its fiscal first quarter earnings reports that spending on general artificial intelligence infrastructure (e.g., AI chips) weighed on gross margins, which it expects to continue in the current period.
Microsoft justified the spending by saying the demand for its AI products is real, and that infrastructure spending is necessary to continue to meet that demand.
“Roughly half of our cloud and AI-related spend continues to be for long-lived assets that will support monetization over the next 15 years and beyond,” said Microsoft Chief Financial Officer Amy Hood.
Meta said it’s seeing “rapid adoption of Meta AI.”
RBC Capital analyst Rishi Jaluria said to buy the dip on Microsoft: “While investors may be hung up on the optics of decelerating Azure growth paired with substantial CapEx, we see a path to upward revisions.”
Analysts also reiterated their Buy ratings on Meta stock.
Good morning. Here's what's happening today.
Economic data: Core PCE index, (September); Initial & Continuing jobless claims, (week ending Oct. 26); Employment cost index, (third quarter); Challenger jobs cuts, (October); Personal income & Spending, (September)
Earnings: Apple (AAPL), Amazon (AMZN), Conoco Phillips (COP), Estee Lauder (EL), Kellanova (K), Intel (INTC), Mastercard (MA), Norwegian Cruise Lines (NCL), Peloton (PTON), Merck (MRK), SiriusXM (SIRI), ComCast (CMCSA); Uber (UBER)
Here are some of the biggest stories you may have missed overnight and early this morning:
Microsoft stock slides as investors weigh earnings
Meta beats, but stock falls on heavy spending plans
Peloton names former Apple exec as CEO to steer turnaround
'Shadow campaigns': Microsoft-Google legal feud heats up
Merck beats Q3 expectations, but China Gardasil sales lag
Starbucks new CEO chats with Yahoo Finance
Starbucks (SBUX) shares are indicating a slightly higher open today despite more details around the dreadful quarter pre-announced last week.
And I will tell you why: new CEO Brian Niccol.
I have known Niccol for about 10 years, going back to his time leading Taco Bell at Yum! Brands (YUM). One thing among many that I have noticed about him is how he really digs into problems and calmly articulates them — and an action plan — to team members and investors.
That was the same Niccol who yours truly and our senior reporter Brooke DiPalma encountered last night in a 15 minute post-earnings call phone chat. Such calm under fire will prove to be a good thing for Starbucks as it has many, many problems to address.
Niccol seemingly has more knowledge about Starbucks in his first three months than the prior CEO gained in more than a year!
He is wasting no time fixing things at Starbucks, as Brooke reports here.
But here is one exchange I had with him on the phone regarding the need to slash the menu size by 25% or more. Cutting the Starbucks menu down is vitally important to driving a better business on the top and bottom lines.
It's good to see Niccol understand this (he made it a point to keep the Chipotle (CMG) menu small, carefully introducing a new item or two a year after thorough testing) as his predecessors never did.
