US close: Alphabet sell-off weighs on tech stocks as earnings disappoint

(Sharecast News) - A sharp drop in the share price of Alphabet weighed heavily on US tech stocks on Thursday as weaker-than-expected results from the search giant reignited concerns over the cost of AI investment.

The Dow and S&P 500 both finished 0.3% lower, while the tech-heavy Nasdaq dropped 1.4%.

Along with a barrage of corporate earnings, investors were digesting an acceleration in inflation in September and faster-than-expected economic growth in the third quarter.

The broader market was also still coming to terms with Wednesday's Federal Reserve decision, with policymakers holding rates at 3.75% to 4% following September's quarterpoint hike. The move was widely anticipated, but the Fed noted that inflation "remains elevated" and signalled it would wait for "the accumulation of more information" before considering further action.

Alphabet shares slumped nearly 13% after the Google parent missed thirdquarter expectations on both earnings and revenue and reported over $9bn of negative free cash flow, while keeping fullyear capex guidance unchanged at $195bn to $205bn.

"Alphabet's accelerated cash burn might have been overlooked if the rest of its update had reassured investors that the money being spent is delivering, but shares in the company slid 13%, dragging down many of its tech-heavy peers," said Danni Hewson, head of financial analysis at AJ Bell.

"Whilst there are plenty of nerves about AI spending, there is little doubt that it is an economic superpower and along with strong consumer spend it helped the US economy grow at the fastest pace this year. But that strength is also likely to play into the Fed's next rate decision, with central bankers holding firm this month but keeping the door firmly propped open on a potential Christmas hike."

Microsoft posted strongerthanexpected firstquarter results, driven by 48% growth in its Azure cloud infrastructure business, though shares gave up earlier gains to slip into the red by the close.

Neocloud names also weakened as Microsoft's lowerthanforecast capex figure suggested data centre partners were taking longer to deliver new capacity.

In terms of Thursday's earnings news, Eli Lilly surged after delivering another strong quarter, with third-quarter earnings and revenues comfortably topping forecasts as demand for its GLP1 drugs Zepbound and Mounjaro remained exceptionally strong.

Caterpillar reported betterthanexpected thirdquarter income, buoyed by strong demand for construction equipment tied to the buildout of AI infrastructure, although shares sank as investors reassessed the sustainability of debtfuelled datacentre spending.

Mastercard rose after posting a solid set of numbers, with thirdquarter net revenues rising 14% and operating income up 16%, while Bristol Myers Squibb also nudged guidance higher after stronger thirdquarter revenue, though net income held broadly flat yearonyear.

Meanwhile, Amazon, Intel, Sandisk and Starbucks were slated to report earnings after the closing bell.

On the macro front, US inflation accelerated in September, keeping price growth well above the Federal Reserve's 2% target, according to the Commerce Department. The personal consumption expenditures price index rose 0.5% on the month, matching consensus forecasts, while the annual rate of 3.6% was just below expectations. Core PCE, the Fed's preferred gauge of underlying trends, increased 0.3% on the month and 3.1% yearonyear, both in line with estimates.

The US economy showed surprising strength, with GDP growing at a 3.4% annualised clip in the third quarter, ahead of the 3.1% forecast and up from 2.2% in Q2. Growth was driven by a 12.7% surge in business investment linked to the AI buildout, while consumer spending rose 3.8%, matching the prior quarter and marking the strongest pace since late 2024.

Initial jobless claims fell by 1,000 to 194,000 in the week ended 17 October, after the prior week was upwardly revised by 1,000, while the fourweek moving average decreased by 1,250 to 196,750 from the prior week's upward revision. Continuing claims decreased by 21,000, with the number of Americans receiving unemployment benefits falling to to 1.701m in the week ended 17 October, while the previous reading was downwardly revised by 6,000 from 1.728m.