(Jan 29): Technology shares declined, dragging the broader stock market lower, as earnings results from Microsoft Corp boosted concern about the payoff from heavy spending on the artificial intelligence (AI) technology.
The tech-heavy Nasdaq 100 Index fell 1.97% at 10.45am in New York as Microsoft plummeted 11.84%, the most since 2020. The S&P 500 Index fell 1.26%, while the Dow Jones Industrial Average lost 0.571%. An equal-weighted version of the S&P 500 Index traded down 0.318%.
“Investors are selling because they probably realised they are not going to make as much money on the AI theme as they hoped for half a year ago,” said Matt Maley, chief market strategist at Miller Tabak & Co. “The AI theme is overcrowded, and investors are revaluing the AI trade, so they are re-weighting big-tech stocks in their portfolios.”
Shares of Microsoft declined after the company reported record spending and slowing cloud sales growth on Thursday, fueling concerns that it could take longer than expected for the firm’s AI investments to pay off. Capital expenditures for the fiscal second quarter hit US$37.5 billion, up 66% from a year earlier and exceeding analyst estimates for US$36.2 billion.
Its performance stands in sharp contrast to Facebook owner Meta Platforms Inc. The stock traded 7.74% higher on Thursday, with analysts saying its stronger-than-expected revenue outlook supports its massive capital spending for the next year.
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“The AI theme, and who benefits from the AI capex going forward, remains the largest driver of factor and market cap calls,” said Dennis DeBusschere, president and chief market strategist at 22V Research.
Investors will get another chance to assess the megacap technology space after markets close on Thursday, when Apple Inc is due to report results.
In Washington, US President Donald Trump and Democrat Senate Minority Leader Chuck Schumer are reportedly nearing a deal to avert a government shutdown. Derek Holt, head of capital markets economics at Scotiabank, said that with funding expiring this weekend, “the US is creeping too close for comfort” to a stoppage.
See also: US stocks trim gains after S&P 500 hits 7,000-point mark
Official data showed the US trade deficit widened in November from the lowest level since 2009 as imports rebounded and exports fell. The goods and services trade gap nearly doubled from the prior month to US$56.8 billion, Commerce Department data showed on Thursday. The 94.6% widening was the largest since 1992, while the shortfall for the month exceeded all projections in a Bloomberg survey of economists.
Separately, initial jobless claims for the last week came in ahead of expectations, while continuing claims fell. Dow Inc shares fell after the company said on Thursday it would cut roughly 4,500 jobs.
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