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Happy Wednesday. Stock futures were mixed as Alphabet (GOOG) tumbled following a disappointing earnings report and reignited concerns about AI capital spending.
Shares of the search giant fell 10.19% in premarket trading after it missed Wall Street’s revenue and profit expectations, reported a sharp slowdown in core search advertising growth and posted negative free cash flow.
Meanwhile, Microsoft (MSFT) shares gained 2.61% after the software giant beat quarterly earnings forecasts, driven by 48% growth in its Azure cloud-computing business.
Markets closed higher on Wednesday as investors reacted to the Federal Reserve’s decision to hold interest rates steady.
“Global markets are struggling to find a clear direction this morning after a busy session dominated by the Federal Reserve and contrasting Big Tech earnings,” said Daniela Hathorn, senior market analyst with Capital.com. “The Fed left rates unchanged at 3.75%–4.00%, as widely expected, but offered little clarity on the path ahead.”
“Despite acknowledging stronger economic activity and persistent inflation, Chair Kevin Warsh struggled to explain convincingly why policymakers had chosen to wait until December rather than raise rates immediately,” she added.
Hathorn said the earnings reports from Alphabet (GOOG) and Microsoft delivered competing narratives about the profitability of AI investment, “leaving US equity markets somewhat confused.”
“The divergence highlights a shift in investor sentiment: markets are no longer rewarding companies simply for investing heavily in AI, but increasingly demanding evidence that spending is generating sustainable profits,” she said. “With Nasdaq futures under pressure, Amazon’s results later today will provide another important test.”
In addition to Amazon, Intel (INTC), Caterpillar (CAT) and Eli Lilly (LLY) are slated to report earnings today.
Hathorn noted that today’s U.S. GDP and PCE inflation releases “could prove more influential for interest rate expectations than yesterday’s Fed meeting,” with strong growth and persistent inflation reinforcing the case for a December rate hike.