Nasdaq futures lead as AMD boosts chips before Fed verdict; Microsoft drops

[July 31, 2024]  (Reuters) - Nasdaq futures jumped more than 1% on Wednesday after a bullish forecast from Advanced Micro Devices bolstered struggling chip stocks, while Microsoft bucked the positive trend in megacaps ahead of a key U.S. interest-rate decision.

AMD soared 9.2% in premarket trading after it increased its 2024 forecast for artificial-intelligence-chip sales.

Chip stocks such as AI favorite Nvidia, Intel, Marvell Technology, Qualcomm, Broadcom and Arm Holdings jumped between 2% and 5.2%.

At 5:39 a.m. ET, Dow e-minis were up 171 points, or 0.42%, S&P 500 e-minis were up 53.25 points, or 0.97%, and Nasdaq 100 e-minis were up 287.5 points, or 1.52%.

Megacap tech and chip stocks have taken a hit this month, after steering the U.S. equity market to record highs in 2024, on euphoria around AI adoption and the prospect of early rate cuts from the U.S. Federal Reserve. Investors, who now see value in underperforming sectors, have started rotating away from megacaps.

The Philadelphia SE Semiconductor index is set to log its first monthly decline in three and its worst month since September 2022. The Nasdaq and the S&P 500 - market-cap weighted indexes which are heavily inclined towards expensive tech stocks - are also set for their weakest month in three, while the price-weighted Dow is on track for its best monthly performance since last December.

Microsoft lost 2.6% as it plans to spend more this fiscal year to build its AI infrastructure, even as growth in its cloud business slowed - another sign that the payoff from hefty investments in the technology might take longer than hoped.

In other megacaps, Alphabet, Apple, Amazon.com, Meta Platforms and Tesla were up between 0.2% and 1.3% on the day.

Meta will report earnings after markets close, while results for Apple and Amazon are due on Thursday.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 3, 2024. REUTERS/Brendan McDermid/File Photo

Quarterly results from tech giants Tesla, Microsoft and Alphabet so far have failed to live up to Wall Street's expectations as investors look for signs to justify the over-stretched valuations for the elite group of stocks, and if the AI-led equity run has steam to spare.

Focus turns to a highly anticipated monetary policy decision from the Federal Reserve later in the day, where it is expected to hold rates steady and open the door for a September rate cut.

With traders fully pricing in a cut by September, according to CME's FedWatch, they fear that any disappointment on this front could amplify the recent equity selloff.

The S&P 500 and Nasdaq fell on Tuesday, weighed by chip and megacap shares, while the Dow outperformed in a fading sector rotation.

The ADP National Employment reading for July, due at 8:15 a.m. ET, will also be on investors' watch list after U.S. job openings data on Tuesday pointed to continued labor resilience underpinning the economy.

In earnings, Starbucks rose 2.3% after its store operation improvements helped the coffee chain meet quarterly profit expectations.

Pinterest slumped 12.5% after forecasting current-quarter revenue below expectations, while Match Group jumped 10% after a second-quarter revenue beat and plans to lay off about 6% of its staff.

(Reporting by Ankika Biswas in Bengaluru; Editing by Pooja Desai)

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