Nasdaq futures sink as Alphabet, Microsoft disappoint; Fed decision in focus

[January 31, 2024]  By Ankika Biswas and Johann M Cherian

(Reuters) -Nasdaq futures slid over 1% on Wednesday, as tech giants Alphabet and Microsoft's projections for rising AI costs disappointed investors, dragging megacap and chip stocks, ahead of the U.S. policy decision expected later in the day.

Alphabet slumped 5.7% in premarket trading after the company reported holiday-season advertising sales below expectations and projected higher spending this year on items such as servers to power artificial intelligence.

Microsoft, too, lost 0.9% after forecasting rising costs to develop new artificial-intelligence features that eclipsed a quarterly results beat.

"In the case of Alphabet, and perhaps Microsoft as well, the market is now getting the jitters that AI investments are going to keep piling up," said AJ Bell investment director Russ Mould.

"These companies have been signaling for a while that investment was needed, but it seems to have fallen on deaf ears until now."

These results and forecasts, coupled with Tesla's growth warning last week, have prompted renewed focus on risks from the outsized weighting of the so-called "Magnificent Seven" stocks in the S&P 500 that have collectively pushed the benchmark index to record highs.

Apple, Meta Platforms and Amazon.com, set to deliver their earnings on Thursday, fell between 0.4% and 2.6%. Together they comprise Magnificent Seven with Tesla, Microsoft, Alphabet and Nvidia.

Advanced Micro Devices tanked 6.2%, as the chipmaker's first-quarter revenue forecast and a boosted projection for AI processors by $1.5 billion failed to meet expectations.

Other chip stocks Nvidia, Intel, Broadcom and Marvell Technology declined between 1.3% and 2.5%.

Among other major earnings, Boeing, Mastercard and Phillips 66 are due before market open, while Qualcomm and Align Technology are expected after market close.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 29, 2024. REUTERS/Brendan McDermid

About 78.5% of the S&P 500 companies that have reported earnings thus far have surpassed expectations, compared with a long-term average of 67%, according to LSEG data on Tuesday.

The focus was now on the Federal Reserve's first monetary policy decision for this year, at 2 p.m. ET. The Fed is widely expected to hold rates steady.

With an improved inflation outlook upping the possibility of policy easing sooner than later, investors will be scavenging for any hints on when the first U.S. rate cut might arrive this year, another key element that could determine the fate of the heavily weighted tech and tech-adjacent stocks.

The ADP National Employment report for January, due before market open, will also be parsed for further insights into the U.S. labor market's strength after the JOLTS report on Wednesday signaled an unexpected rise in December job openings.

At 6:57 a.m. ET, Dow e-minis were up 51 points, or 0.13%, S&P 500 e-minis were down 24 points, or 0.48%, and Nasdaq 100 e-minis were down 203.5 points, or 1.16%.

Among others, Tesla shed 2.9% after a Delaware judge tossed out Elon Musk's record-breaking $56 billion Tesla pay package.

Mondelez International lost 4.5% as price hikessqueezed demand for the Cadbury parent's chocolates and salty crackers, while Thermo Fisher Scientific dropped 2.0% after the medical equipment maker forecast annual profit below estimates.

(Reporting by Ankika Biswas and Johann M Cherian in Bengaluru; Editing by Shinjini Ganguli)

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