Nasdaq slides over 1% as Alphabet results revive AI spending fears

By Shashwat Chauhan and Utkarsh Hathi

Oct 29 (Reuters) - The tech-heavy ‌Nasdaq fell more than ​1% on Thursday, ​as Alphabet's results rekindled worries about soaring AI costs, while investors assessed fresh inflation data following the Federal Reserve's decision to keep interest rates unchanged.

Alphabet shares slid 13%, and were on track for their steepest one-day fall on record, ‌after the company reported disappointing search advertising results and a surge in cash burn as AI-related spending accelerated.

The ⁠Google parent is on track to lose more than $500 billion in market value, accounting for most of the over $693 billion the Nasdaq-100 was set to erase if current losses ‌hold.

"The positive AI effects must stay intact ‌for years to come, or investors in Alphabet (and other hyperscalers) will eventually re-rate the multiples as the bottom-line profits fade," said Anders Bylund, tech analyst at The Motley Fool.

Microsoft edged 0.5% lower following media reports the company is planning to raise at least $25 billion ​through its first US investment-grade bond sale in more than nine years. The company on Wednesday delivered a big cash-flow beat and forecast strong cloud growth.

Investor enthusiasm for AI trade has been tempered this month by worries that debt-fueled spending will be harder to justify ⁠as borrowing costs climb. Anthropic's disclosure of US IPO filing on Monday offered a short-lived reprieve, before those fears resurfaced.

The Philadelphia SE Semiconductor index was down 1.8%, after gaining for four ​straight sessions.

Software stocks were also trading sharply lower. Cybersecurity firm Fortinet slipped 21.7% after reporting third-quarter results, while ServiceNow dropped 23.3% after missing third-quarter profit estimates.

At 09:56 a.m. ET, the Dow Jones Industrial Average fell 163.18 ​points, or 0.31%, to 52,311.92. The S&P 500 lost 39.43 points, or 0.51%, ‌to 7,704.55, while the Nasdaq Composite shed 436.54 points, or 1.64%, to 26,117.47.

An 8% decline in Caterpillar weighed on the Dow. The company kept its annual sales forecast unchanged, raising questions over how long the data-center ⁠boom can drive growth for power-generation equipment.

Four of the 11 major S&P 500 sectors posted losses, with communication services sector leading the declines, while healthcare gained the most, up 2.8%.

Meanwhile, data on Thursday showed the Personal Consumption Expenditures Price index rose in line with the estimates of economists polled by Reuters. A separate ⁠reading showed the US economy grew faster than expected in the third quarter.

"The combination of still very strong and resilient economic growth, together with inflation and prices ​moving further away from the Fed's target, reinforce the expectation that October was a skip rather than a hold for the Fed," said Angelo Kourkafas, senior global investment strategist at Edward Jones.

The Fed on Wednesday held interest rates steady, as expected, opting to delay any changes to borrowing costs until after next week's ‌US midterm elections.

Traders widely expect the US central bank to hike rates during its next meeting in December, according to data compiled by LSEG.

Among other movers, drugmaker Eli Lilly climbed more than 8% after forecasting ‌annual revenue above Wall Street estimate.

Marvell Technology dropped 12.8% after media reports said the company was in advanced talks to buy data-center optics maker Lumentum Holdings. ⁠Lumentum shares rose 3.4%.

Advancing issues outnumbered decliners by a 1.93-to-1 ‌ratio on the NYSE and by 1.33-to-1 ​on the Nasdaq.

The S&P 500 posted 15 new 52-week highs and six new lows, while the Nasdaq Composite recorded 60 new highs and 75 new lows.

(Reporting by Shashwat Chauhan and Utkarsh Hathi in Bengaluru; Editing by Mrigank Dhaniwala ‌and Shilpi Majumdar)

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