S&P 500 and Nasdaq: Rising AI Costs Send Microsoft, Meta, and Tech Stocks Lower

Wall Street Slips as AI Cost Concerns Weigh on Tech Giants

Wall Street saw declines on Thursday, with Microsoft and Meta Platforms leading the pullback after both companies warned of increased costs related to their investments in artificial intelligence. While both companies reported quarterly earnings that exceeded expectations, investor concerns over rising capital expenditures linked to AI initiatives led Microsoft’s stock to drop 5.1% and Meta’s to fall 2.8%. Other key tech stocks also faltered, putting pressure on the broader market and contributing to further volatility.

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Holding this level could create a short-term range bound trade, but breaking through it with conviction will put the 200-day moving average at 5485.33 on the radar.

Megacap Stocks Decline on AI Investment Warnings

Despite topping analysts’ earnings estimates, Microsoft and Meta acknowledged that their escalating AI expenditures might impact future profitability. The companies’ cautions about cost increases put additional weight on other prominent tech names, with Nvidia, Amazon, and Apple all slipping ahead of their own earnings releases. Investors who have fueled a rally in tech this year have grown cautious, questioning whether current valuations can withstand the long-term cost pressures associated with developing and scaling AI technology.

Treasury Yields and Inflation Data Add Pressure

In addition to tech concerns, market sentiment was impacted by rising yields on the 10-year Treasury note, which surpassed 4.3% on Thursday. Higher yields tend to make equities less attractive, especially for sectors dependent on growth. Meanwhile, the Personal Consumption Expenditures (PCE) price index, a key measure of inflation watched closely by the Federal Reserve, met forecasts with a 0.2% increase in September. However, core PCE inflation was marginally higher than anticipated at 2.7%, intensifying speculation around potential Fed policy moves. Some investors are now betting the Fed may opt to pause interest rate cuts, adding a layer of uncertainty to an already cautious market.

Sector Losses and Volatility Rise

Sector-wise, the Information Technology index fell 2.1% as rising costs and concerns over AI profitability took their toll. Estee Lauder plummeted 22% after cutting its dividend and withdrawing 2025 forecasts, while Robinhood and Uber also suffered double-digit declines after underwhelming earnings results. Energy shares were a notable bright spot, with ConocoPhillips lifting the sector by 1% following positive earnings. Overall, the S&P 500 registered more new lows than highs, reflecting a challenging session across multiple sectors.

Semiconductor ETF and Chip Stocks Struggle

The iShares Semiconductor ETF (SOXX) also recorded a decline of over 3%, driven by disappointing updates from key chipmakers. Monolithic Power Systems led the losses within SOXX, tumbling nearly 17% due to lower-than-expected enterprise data revenue, while Universal Display dropped 8% after lowering its full-year revenue forecast. Arm Holdings, another SOXX constituent, also posted an 8% drop as investor confidence in the semiconductor sector weakened.

Outlook: Bearish Sentiment Ahead for Major Indices

Given ongoing concerns over AI-driven spending by tech giants and the Fed’s ambiguous interest rate policy, market sentiment appears increasingly bearish in the short term.

BTIG’s chief market technician foresees further downside risk, citing the S&P 500’s recent break from its August uptrend. With major earnings reports and economic data on the horizon, investors may brace for heightened volatility, especially in technology and growth-sensitive sectors.

The Nasdaq could see further pressure if corporate results and economic indicators don’t allay inflation and spending concerns.