Nasdaq lags on angst over AI spending ahead of earnings reports
By Sinéad Carew and Ragini Mathur
July 24 (Reuters) - The tech-heavy Nasdaq fell on Friday as investors sold chip stocks on worries about massive spending on artificial intelligence ahead of the next batch of megacap earnings reports, while falling oil prices provided Wall Street with some support even as Middle East hostilities continued.
The S&P 500 barely advanced and its biggest weight came from the S&P 500 technology index, which underperformed the broader market to finish down 0.88%, as chip stocks fell.
While investors looked ahead to next week's results from megacaps Microsoft, Amazon.com, Meta and Apple Inc, their enthusiasm has waned since Alphabet's announcement, late on Wednesday, of a massive hike to its capital spending plans even as it burns cash.
After piling into technology stocks in recent years on the promise of growth from AI, investors have become worried about the need for ever-increasing capital outlays for AI, according to Peter Andersen, CEO of Andersen Capital Management.
"People are thinking, how do we make sense of all this spending, and how much more patient do we have to be before we actually see it translate to actual profits?" Andersen said.
"The fear of missing out is becoming more like a fear of massive overbuilding."
Late on Thursday, Intel forecast quarterly profit and revenue above Wall Street estimates and outlined plans to increase spending over the next two years. Still, the chipmaker's shares sank to close down 7.9% on Friday in sympathy with the Philadelphia SE Semiconductor index, which dropped 4.5%.
The Dow Jones Industrial Average rose 235.60 points, or 0.46%, to 51,947.25, the S&P 500 gained 3.68 points, or 0.05%, to 7,411.98 and the Nasdaq Composite lost 161.87 points, or 0.64%, to 24,975.82.
For the week, the Dow fell 0.4%, its third straight weekly loss. The S&P 500 and the Nasdaq registered their second straight week in the red with the S&P falling 0.6% while the Nasdaq lost 2%.
Among the S&P 500's 11 major industry indexes, real estate was the strongest, with a 2.4% advance. The sector's leading gainer was Digital Realty Trust, which rallied 11% after it raised its full-year forecast for funds from operations.
The second-biggest sector gainer was materials which rose 1.44% as investors turned their attention to paper and packaging companies. International Paper led the pack with an 11.2% advance, making it the S&P 500's biggest percentage gainer on the day. It was followed closely by the U.S.-traded shares of paper company Smurfit Westrock, which added 11.1%.
Also providing some relief was a 3% drop in crude oil futures on the day while traders booked profits from a massive rally in the last five sessions and after sources said China was pushing to resume stalled U.S.-Iran peace talks. Still, U.S. missiles struck targets across Iran after President Donald Trump vowed "major military punishment" for Tehran and its Houthi allies in Yemen. Oil prices had rallied in the prior five sessions.
"Whatever the headlines are involving the conflict right now, that drives oil and then oil drives financial markets," said Andersen, adding that swings in oil prices can impact consumer and corporate spending.
Also, the Trump administration imposed new tariffs of 10% and 12.5% on goods from 60 trading partners, citing lax enforcement of forced-labor bans. The move came as a temporary 10% global tariff expired.
Friday's data showed that activity in the U.S. services sector accelerated in July, aided in part by spending around the FIFA World Cup and the Independence Day holiday, while the pace of growth in the manufacturing sector eased to the slowest since March.
Among other individual gainers, SLB shares climbed 11% after the oilfield services firm beat expectations for second-quarter profit.
Advancing issues outnumbered decliners by a 1.32-to-1 ratio on the NYSE where there were 161 new highs and 198 new lows. On the Nasdaq, 2,174 stocks rose and 2,718 fell as declining issues outnumbered advancers by a 1.25-to-1 ratio.
The S&P 500 posted 18 new 52-week highs and 6 new lows while the Nasdaq Composite recorded 78 new highs and 205 new lows.
On U.S. exchanges 15.03 billion shares changed hands compared with the 18.22 billion moving average for the last 20 sessions.
(Reporting by Sinéad Carew in New York, Ragini Mathur and Avinash P in Bengaluru; Editing by Maju Samuel and David Gregorio)