Questions over how much Big Tech is spending on artificial intelligence, and how quickly that spending will pay off, dominated markets on Thursday. Alphabet led a sharp fall in technology shares after its third-quarter results disappointed, and further weak updates from Amazon and Intel after the US close carried the sell-off into Asia on Friday morning. European shares moved the other way, helped by solid earnings and a steady European Central Bank.
Global markets at a glance
Equity markets split along regional and sector lines, with technology-heavy indices under the most pressure.
US equities
Wall Street finished mostly in the red. The Nasdaq lost 1.4%, while the broader S&P 500 eased 0.3% and the Dow Jones gave up 0.25%. Alphabet was the main drag, falling more than 12% after its third-quarter revenue and earnings came in below forecasts. The company also reported negative free cash flow of roughly $9bn, reflecting the heavy cost of building out its AI infrastructure. Microsoft posted results ahead of expectations, but this was not enough to ease wider doubts about whether the sector can sustain its current level of capital expenditure.
Asian markets and US futures
Selling picked up again in extended trading. Amazon shares dropped more than 7% and Intel tumbled around 23% after both companies issued disappointing guidance. Asian markets followed on Friday morning, with technology and chip stocks hit hardest. South Korea’s KOSPI fell by more than 5% and Japan’s Nikkei was down around 2.8%, as investors weighed the funding needs and uncertain payback of the AI investment cycle. US futures also pointed lower, with Nasdaq 100 futures down about 2.1%, S&P 500 futures 1.0% lower and Dow Jones futures off 0.2%.
European equities and central banks
Europe offered a contrast. The STOXX 600 added 0.9% and the EURO STOXX 50 gained 0.8% on Thursday, supported by company results and the ECB’s decision to hold interest rates. In Japan, the Bank of Japan kept its policy rate at 1.25%. One policymaker favoured a hike, and markets still see a possible increase in December.
Bonds, currencies and commodities
Government bond markets pointed to a more cautious investment environment.
Government bonds and rate expectations
US Treasuries rallied as investors moved into safer assets during the technology sell-off. The 10-year yield fell towards 4.9%, its lowest point in seven weeks. The Federal Reserve’s path remains difficult to read, however. US GDP grew at a stronger than expected 3.4% in the third quarter and inflation remains sticky, and markets are giving more weight to the chance of a rate rise in December. In the eurozone, the ECB left its deposit rate at 2.5%. President Christine Lagarde also announced that she will step down in February, ahead of the original timetable.
Currencies
The US dollar index slipped 0.3% to 101.76 as lower Treasury yields and renewed demand for government bonds weighed on the currency. The euro rose 0.1% against the dollar to 1.1195, although it is still heading for a loss over the month.
Oil
Oil prices climbed on Friday. Brent crude gained 0.7% to $115.72 a barrel amid fresh concerns about possible US military action against Iran and disruption to Middle Eastern supplies. A drop in US crude stockpiles added further support.
Corporate earnings and investment implications
Earnings season brought the cost of the AI build-out into sharp focus, while results outside technology were more varied.
Big Tech and the cost of AI infrastructure
Alphabet’s quarter showed the tension between booming demand for AI and cloud services and the scale of investment needed to meet it. Google Cloud revenue more than doubled, rising 103% from a year earlier, but weaker than expected growth in Search and a negative free cash flow figure triggered a heavy sell-off in the shares.
Microsoft is reported to be preparing a bond sale of around $25bn, its first US investment-grade issue in over nine years, with investor orders above $100bn. The deal shows how the largest technology companies are increasingly turning to debt markets to help pay for AI infrastructure.
Amazon’s third-quarter figures fell short of expectations. Free cash flow deteriorated to negative $42.4bn amid substantial AI investment. AWS revenue grew 39.3%, but guidance for fourth-quarter revenue disappointed the market.
Semiconductors under pressure
Intel delivered a notably weak outlook. The company said manufacturing bottlenecks, rising memory costs and soft demand for PCs will push its cash flow into negative territory this year. It also expects an explosion at its manufacturing facility in Israel to cut revenue by about $600m across two quarters. The news weighed on chip stocks more widely, while questions over Nvidia’s customer-screening processes and US export controls added a geopolitical element to the sector.
AI computing contracts
Reports showed that Anthropic made up 34.5% of SpaceX’s third-quarter revenue, highlighting how much SpaceX now relies on AI computing contracts. Anthropic has committed up to $120.5bn in computing contracts through 2029, with termination provisions taking effect from 2027. The figures show both the growing weight of AI infrastructure deals and the concentration of revenue among major customers.
Industrials and materials
Caterpillar reported a strong third quarter. Revenue rose 17% to $20.68bn and adjusted earnings beat forecasts, helped by demand for power and energy equipment used in data-centre projects. Even so, the shares fell more than 8% as investors questioned how long AI-related investment can continue at this pace. CRH shares recovered to end the day higher despite a cut to full-year earnings guidance. A new $6bn share buyback, the completion of its $8.5bn acquisition of Arcosa and a 5% increase in the dividend lifted sentiment.
Healthcare and consumer
Eli Lilly grew revenue by 39% to $24.4bn on continued strong demand for Mounjaro and Zepbound, and raised its full-year revenue guidance. AbbVie reports results today. Starbucks beat expectations on both sales and earnings and announced a $1bn share repurchase programme, but its forecast of a 1% fall in revenue in fiscal 2027 pushed the shares lower. DoorDash posted better than expected results and announced a proposed $17bn deal to buy Instacart, which may draw regulatory scrutiny.
European company results
Results in Europe were mixed. Shell and TotalEnergies both reported much higher third-quarter profits on the back of stronger energy prices and refining margins, and Shell expanded its share buyback. Airbus kept its full-year guidance unchanged despite lower quarterly revenue and adjusted earnings. ING’s profit fell short of expectations as higher operating costs and loan-loss provisions weighed on the quarter. Lloyds came under pressure even after a significant rise in quarterly profit, as investors were disappointed by unchanged targets and worried about higher sector taxes. Adidas held its upgraded annual guidance, supported by stronger demand for running and football products.
What to watch today
Friday brings a busy calendar of economic data and company results.
Eurozone growth and inflation
Preliminary third-quarter GDP figures are due for the eurozone, France, Germany, Italy and Spain, offering a fresh read on the region’s growth momentum. October inflation data from France, Germany and Italy will also be closely watched.
US data and Fed commentary
In the US, markets will look at third-quarter employment costs and the Chicago PMI, as well as a speech from Fed official Michael Musalem.
Earnings releases
ExxonMobil, Chevron, AbbVie and AstraZeneca are among the major companies reporting third-quarter results, along with several of China’s leading banks.
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