Wall Street slides as Alphabet revenue miss revives AI capex jitters

On Thursday, US stock prices fell as investors questioned the extent of tech giants' AI investments following Alphabet's lower-than-expected quarterly earnings. All three major US indexes - the Nasdaq, Dow Jones Industrial Average, and S&P 500 - closed in the red. The Nasdaq suffered the most significant decline, falling 1.66% due to tech and tech-related megacap stocks.

Alphabet's shares dropped 13.2% after reporting a revenue shortfall, driven by increased AI-related expenditures. The small-cap Russell 2000, however, managed to gain 0.8%. Analysts believe this risk-off day indicates the market's interpretation of the AI story may not negatively impact all sectors. The Federal Reserve decided to keep interest rates stable amid high inflation, with more information required before deciding on the next move.

Economic data revealed that the US economy grew faster than anticipated in Q3, but rising oil prices due to a war-related supply crunch contributed to inflation concerns. Among the 11 major sectors in the S&P 500, communication services and tech saw the largest declines, while healthcare led gains. Of the 253 companies in the S&P 500 that reported third-quarter earnings, 81% exceeded analyst expectations.

Notable performers included Caterpillar, Eli Lilly, and Ford, while software stocks like Fortinet and ServiceNow experienced sharp declines. Despite a risk-averse market sentiment, advancing issues outnumbered decliners on both the NYSE and Nasdaq, signaling investor confidence in other sectors beyond the AI trade.