Wall St. ends lower than expected as Meta and Microsoft highlight AI costs

The major U.S. indexes ended lower on Thursday, after Microsoft and Meta Platforms pointed out that artificial intelligence costs could impact their earnings. This dampened the enthusiasm for megacaps which have been driving this year's market rally.

Microsoft and Meta Platforms, which own Facebook, saw their shares fall despite the fact that both companies beat earnings expectations in results announced after Wednesday's bell.

The other so-called Magnificent 7 megacap technology companies also fell. Amazon.com, Apple and other technology stocks fell ahead of their quarterly reports due after market close. Alphabet shares, which released their quarterly results on Tuesday, fell as well.

Carol Schleif is the chief investment officer of BMO Family Office. She said that investors do not like hearing that three out of seven Magnificent Seven have budgets open-ended for AI.

"The implications of the buildout on intermediate and long-term are very important for U.S. growth and productivity in the long term. ... Investors are wondering where the profits will be in the short term.

Microsoft and Meta have both stated their respective positions.

Capital expenses

AI investments could be reducing profitability.

The preliminary data shows that the S&P 500 fell 110.39 points or 1.90% to 5,703.28 points. Meanwhile, the Nasdaq Composite dropped 522.07 or 2.81% to 18,085.86 points. The Dow Jones Industrial Average dropped 380.02 or 0.93% to 41,761.52.

In September, the Federal Reserve’s preferred inflation metric – the Personal Consumption Expenditures Price Index – rose by 0.2%, as expected by economists. The core figure, however, was 2.7%, which is slightly higher than the 2.6% forecast. Consumer spending also increased more than expected.

After the data was released, traders continued to place bets on a rate cut of 25 basis points at the Fed's meeting in November.

Schleif stated that "we do expect them cut by a quarter the following week, because nothing this week should have thrown them off that."

Energy and utilities saw a rise in their results, thanks to ConocoPhillips' and Entergy's positive results.

Monolithic Power Systems, a manufacturer of semiconductors and power control products used in automobiles, reported its results. This led to a fall in the index of chip stocks. Nvidia was also down.

The VIX (Wall Street's "fear indicator") ticked upward as investors prepared for greater volatility in the coming weeks due to corporate results, the U.S. Presidential election on Nov. 5, and the Fed's policy setting meeting.

Estee Lauder's stock plummeted, and it is on course to have its worst ever day after the cosmetics firm retracted its annual forecasts for 2025.

Uber Technologies shares plunged after it forecast that fourth-quarter gross bookings would be below expectations.

(source: Reuters)