Nasdaq futures dropped on Thursday as mixed earnings from Alphabet and Microsoft left investors weighing the payoff from heavy AI spending, with focus also on an inflation reading a day after the Federal Reserve left interest rates unchanged.
Alphabet slid 10.5% in premarket trading after the company reported disappointing results in the core business of search advertising and a massive acceleration in cash burn as it poured resources into building out AI.
"Investors are starting to scrutinize monetization timelines versus the capital expenditure burn rates. Some investors are no longer giving all hyperscalers a 'free pass' to spend without limit," said Jeremy Saltzberg, VP and senior investment officer at Check Capital Management.
On the other hand, Microsoft climbed 3.5% after the company delivered a big cash-flow beat and forecast strong cloud growth, offering fresh evidence that its hefty AI bets were working.
Other early movers included cybersecurity firm Fortinet, which tumbled 25.4% after reporting third-quarter results. Software maker ServiceNow dropped 19% after missing third-quarter profit estimates.
Other software-related companies, including Zscaler and Salesforce, were among the laggards in sector-wide weakness.
Marvell Technology fell 9.4% after media reports said the company is in advanced talks to buy data-center optics maker Lumentum Holdings. Lumentum shares rose 4.3%.
Marvell and Lumentum did not immediately respond to Reuters requests for comment.
The broader semiconductor space was trading lower, with Nvidia down 1%, AMD sliding 3.3% and Intel off 3.6%.
Intel and Amazon are some of the major tech companies reporting after markets close on Thursday.
On the earnings docket before the bell are drugmakers Merck and Eli Lilly, construction equipment maker Caterpillar, and alternative investment managers Ares Management and Blue Owl.
At 4:09 a.m. ET, Dow E-minis were up 185 points, or 0.35%, and S&P 500 E-minis were down 31 points, or 0.41%. Nasdaq 100 E-minis were down 365 points, or 1.22%.
Meanwhile, the Federal Reserve held interest rates steady on Wednesday, as expected, opting to delay any changes to borrowing costs until after next week's US midterm elections while it awaits further data on inflation.
"The decision to hold seems to be a short pause to assess ahead of a likely policy hike in December, rather than an indication that no further tightening is needed," said Jon Butcher, a senior US economist at Aberdeen.
Focus will be on the September Personal Consumption Expenditures report, the Fed's preferred inflation gauge, due later in the day. A third-quarter GDP reading is also set for release.
Traders currently see a more than 81% chance the Fed will hike interest rates in December, as per the CME FedWatch Tool, as key inflation metrics remain elevated amid the oil shock caused by the Middle East conflict.
Money market participants are also pricing an additional rate hike by mid-2027, according to data compiled by LSEG.
Among other stocks, car e-commerce platform Carvana jumped 9.2% after its third-quarter revenue surpassed estimates, while Chipotle Mexican Grill gained 6.7% after reporting better-than-expected quarterly comparable sales.
(Reporting by Shashwat Chauhan in Bengaluru; Editing by Mrigank Dhaniwala)
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