Key facts
- US stock index futures declined due to concerns over AI spending and Big Tech earnings.
- Alphabet shares fell 3.9% after reporting strong cloud growth but increased capital expenditure plans.
- Tesla dropped 5.8% after reporting negative free cash flow for the second quarter.
- Brent crude futures reached $98 a barrel, their highest level since early June, reviving inflation worries.
- 2-year Treasury yields hit a 17-month high as traders increased bets on a Federal Reserve rate hike.
- ServiceNow jumped 8.1% after raising its annual subscription revenue forecast.
U.S. stock index futures dipped on Thursday as concerns over heavy artificial intelligence spending resurfaced following initial Big Tech earnings reports. The market sentiment was further weighed down by a jump in oil prices, linked to the widening Middle East conflict.
Investors reacted negatively to earnings from Alphabet and Tesla. Alphabet reported its strongest-ever quarter for cloud computing growth but its increased capital expenditure plans raised investor concerns, leading to a 3.9% premarket share drop. Tesla dropped 5.8% after reporting negative free cash flow for the second quarter for the first time in over two years.
Lale Akoner, global market strategist at eToro, noted that Alphabet and Tesla represent different stages of the AI investment cycle, with Alphabet beginning to show connections and Tesla needing to prove commercial returns from its ambitious projects. Capital spending plans will remain a key focus for other major technology companies reporting next week, as investors question the translation of AI investments into meaningful returns and the justification for elevated stock valuations.
Geopolitical concerns also contributed to market pressure. Attention has shifted to the Red Sea, where Iranian-aligned Houthis have opened a new front in the Middle East crisis. Brent crude futures rose to $98 a barrel, their highest level since early June, reigniting inflation worries. This surge pushed interest-rate-sensitive 2-year Treasury yields to a 17-month high, as traders increased bets on a Federal Reserve rate hike as early as next week. Markets are now pricing in approximately a 35% chance of a 25-basis-point increase at the Fed's July meeting.
At 5:37 a.m. ET, Dow E-minis were down 225 points (0.43%), S&P 500 E-minis were down 29.25 points (0.39%), and Nasdaq 100 E-minis were down 109 points (0.37%). Chip stocks experienced mixed performance, with Texas Instruments falling 5.2% despite forecasting quarterly revenue above estimates. Health insurer Molina Healthcare tumbled 8.8% despite raising its annual profit forecast and posting stronger-than-expected second-quarter results. Conversely, ServiceNow jumped 8.1% after the enterprise software company raised its annual subscription revenue forecast for the second time.