Google stock has its worst day ever after earnings miss raises AI fears

US equities dipped on Thursday, as investors reconsidered the rapid AI spending by major technology companies following disappointing quarterly results from Alphabet. The Nasdaq suffered a steep decline due to tech and tech-related megacap stocks, while the small-cap Russell 2000 managed a slight gain. Semiconductor stocks also faced pressure, slipping 2.0pc as investors sought clarity on companies capable of funding their AI ambitions versus those struggling to manage cash and debt.

Alphabet's shares plummeted 13.2pc, reflecting a revenue shortfall and accelerated AI-related cash burn. However, a risk-averse market sentiment, driven by small-cap stocks outperforming, suggested that the AI concerns might not spell trouble for the entire market. Federal Reserve policymakers decided to keep US interest rates unchanged, acknowledging elevated price pressures but stating they would reassess their next move as they gather more data.

Thursday's economic data brought mixed signals, with a slightly faster-than-expected GDP growth in the third quarter and persistent inflation fueled by a war-related oil supply crunch. The Dow Jones Industrial Average fell 315.36 points, or 0.59pc, to 52,163.07, the S&P 500 dropped 48.73 points, or 0.63pc, to 7,695.25, and the Nasdaq Composite slumped 441.15 points, or 1.66pc, to 26,108.35.

Communication services and tech sectors led the decline, while healthcare emerged as the top performer. Of the 253 companies in the S&P 500 that reported third-quarter earnings, 81pc exceeded analyst expectations, indicating robust corporate performance overall. Caterpillar surpassed profit estimates but maintained its growth targets, while Eli Lilly rose 6.3pc after boosting its revenue outlook due to strong weight-loss drug sales.

Ford also exceeded revenue expectations, gaining 2.9pc. Merck reported better-than-anticipated earnings, driven by its cancer drug Keytruda and HPV vaccine Gardasil, resulting in a 4.4pc share increase. Software stocks, however, faced broad weakness, with Fortinet and ServiceNow dropping over 20pc each after releasing disappointing quarterly results.

Marvell Technology experienced a 12.8pc decline following reports of advanced talks to acquire Lumentum Holdings, a data-center optics maker, which caused Lumentum's shares to rise 2.0pc. Amazon's shares slipped 3.9pc ahead of its earnings report, expected after the market close, while advancing issues outnumbered decliners on both the NYSE and Nasdaq.