Wall Street slides as Alphabet revenue miss revives AI capex jitters

US stock markets declined on Thursday as investors reevaluated the expansive AI spending by major technology firms, amid the release of high-profile earnings, critical inflation data, and the Federal Reserve's policy decision. The Nasdaq suffered significant losses due to heavyweights in the tech sector following Alphabet's underwhelming quarterly results.

While the small-cap Russell 2000 shares rose 0.8 percent. Semiconductor stocks, anticipating a break from their four-day winning streak, slipped 2.0 percent as investors tried to differentiate between entities capable of funding their AI ambitions and those burdened by excessive spending. Alphabet's shares dropped 13.2 percent following its revenue miss and heightened AI-related cash burn.

Ross Mayfield, an investment strategy analyst at Baird, noted that the market's reaction to potential cracks in the AI narrative suggests that not every sector is affected. With the Federal Reserve holding US interest rates steady, stating that price pressures are elevated but will reassess its next steps as it gathers more information, economic data released on Thursday provided further context.

The third-quarter GDP growth was faster than anticipated, but systemic inflation continued to rise due to a war-related oil supply crunch. Among S&P 500 sectors, communication services and technology saw the most significant declines, while healthcare led the gains. As the third-quarter earnings season progressed, 253 out of 500 companies had reported, with 81 percent exceeding analyst expectations.

Caterpillar's shares fell 9.5 percent despite surpassing profit estimates, while Eli Lilly's stock surged 6.3 percent after raising its revenue outlook.