Key facts
- Alphabet's stock fell due to increased AI-linked capital expenditure plans.
- Chip stocks experienced mixed performance, with STMicroelectronics dropping 14% and Intel shares rising.
- Tesla's stock declined 4% after reporting negative free cash flow for the first time in over two years.
- Oil prices surged above $100 a barrel, contributing to rising bond yields.
- The European Central Bank is expected to signal a hawkish stance at its policy meeting.
- US initial jobless claims fell to their lowest level since 1969.
European and U.S. stocks slumped while bond yields rose sharply on Thursday, as global markets reacted to oil prices surging above $100 a barrel and earnings reports from major U.S. technology companies indicating significant cash burn due to AI spending.
Alphabet's stock fell 7% after reporting strong cloud growth but also signaling increased capital expenditure for AI investments, with free cash flow turning negative for the first time in over 20 years. Tesla also reported negative free cash flow for the first time in two years, contributing to a 15% drop in its stock. These results have raised concerns about the financial health of Big Tech companies, which are increasingly relying on debt and share sales to fund AI initiatives.
In the semiconductor sector, chip stocks showed a mixed performance. South Korean chip stocks rose 4%, while STMicroelectronics dropped 14% on an earnings miss. Intel shares, however, rose 12% after the bell.
The surge in oil prices, driven by escalating Middle East conflict and Red Sea shipping disruptions, pushed Brent crude above $100 a barrel and WTI over $90. This, combined with a significant drop in U.S. initial jobless claims to their lowest level since 1969, led to a sharp increase in Treasury yields, with two- and 10-year yields hitting 18-month highs and the 30-year real yield reaching its highest since 2008.
The European Central Bank kept interest rates unchanged but is expected to signal a hawkish stance at its next meeting in September, as inflation concerns persist. Markets are pricing in a high probability of further rate hikes by the ECB and the Federal Reserve.