Wall Street Futures Tumble Amid AI Cost Warnings

By Lisa Pauline Mattackal
(Reuters) – Wall Street futures tumbled on Thursday as warnings from Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT) about rising AI-related costs dampened optimism around megacap stocks, the primary market drivers this year.

Shares of Facebook-owner Meta slumped 3.5% and Microsoft dropped 3.9% in premarket trading, despite both companies beating earnings estimates reported after the bell on Wednesday.

Markets were also on edge ahead of the release of the Personal Consumption Expenditures index, the U.S. Federal Reserve's preferred inflation metric, providing insight on potential easing of borrowing costs in the last two months of 2024. Nonfarm payrolls data is also due on Friday.

Meta warned of a "significant acceleration" in AI infrastructure investments. Microsoft predicted slower growth in its Azure cloud business, indicating that hefty AI investments were insufficient to keep pace with capacity constraints.

Other Magnificent Seven stocks also slipped, with Nvidia (NASDAQ:NVDA) down 1.5% and Alphabet (NASDAQ:GOOGL) down 0.7%, retreating after gains from previous sessions due to upbeat results. Amazon.com (NASDAQ:AMZN) lost 1%, while Apple (NASDAQ:AAPL) dipped 0.2% ahead of quarterly reports due after market close.

Although investments in AI-driven tech stocks have propelled Wall Street to record highs, elevated valuations have left stocks vulnerable. Meta and Microsoft's warnings illustrate the challenges of meeting investor expectations.

"The market is unforgiving for any AI-related company that fails to significantly outperform," remarked Dan Coatsworth, an investment analyst at AJ Bell. "Meta is the latest stock to feel the wrath of investors, despite reporting better than expected on key financial measures."

Dow E-minis were down 206 points, or 0.49%, S&P 500 E-minis declined 43.25 points, or 0.74%, and Nasdaq 100 E-minis were down 180.75 points, or 0.88%.

The VIX, Wall Street's "fear gauge," rose to its highest level in over three weeks as investors brace for more volatility due to forthcoming corporate results, the upcoming U.S. presidential election, and the central bank's November meeting.

Despite gains, the benchmark index is set for its sixth consecutive month of gains in October, while the Nasdaq Composite is poised to rise over 2%, with the Dow tracking slight declines.

In results-driven moves, e-commerce firm eBay (NASDAQ:EBAY) fell 9% following dim revenue forecasts, while trading platform Robinhood (NASDAQ:HOOD) slumped 10.5% after its third-quarter earnings missed expectations. Uber Technologies (NYSE:UBER) shares dropped 6.5% after forecasting fourth-quarter gross bookings below expectations. Estee Lauder (NYSE:EL) plummeted 16.6% after withdrawing 2025 annual forecasts and cutting its dividend.

Of the S&P 500 companies that have reported results thus far, 77.4% have exceeded analysts' expectations, in line with the 79% average beat rate of the past four quarters, according to LSEG data as of Wednesday.