Nasdaq 100: US Stocks Drop as Meta, Microsoft Rattle Sentiment; Apple, Amazon Up Next
News Summary
US stocks opened under pressure on Thursday, with the Nasdaq Composite dropping as Meta and Microsoft dragged down sentiment due to soaring AI investment costs raising concerns over long-term profitability. Microsoft reported a $3.1 billion hit from its OpenAI stake, while Meta booked a $15.93 billion charge related to Trump’s "One Big Beautiful Bill Act" and raised its capital expenditure guidance for AI infrastructure, despite strong revenue growth, leading investors to question the spending ramp. Alphabet was a standout, surging over 7% post-earnings after beating both revenue and profit expectations, but its strength was insufficient to offset the broader pressure from Meta and Microsoft. The market is now keenly anticipating Apple and Amazon's upcoming earnings reports for potential relief or continued pressure on the tech sector. Additionally, a U.S.-China trade truce, including reduced fentanyl tariffs and China delaying rare earth export restrictions, provided some market cushion, boosting rare earth stocks.
Background
The current market is in a period of re-evaluating the profitability of large technology companies and the return on investment for Artificial Intelligence (AI). While AI is seen as a crucial growth driver, its high research, development, and infrastructure costs are eroding short-term profits, raising investor questions about capital expenditure efficiency. Following President Trump's re-election in 2024, his administration's trade policies, particularly tariffs and legislation targeting China (such as the "One Big Beautiful Bill Act" and China duties), continue to challenge the supply chains and profits of multinational tech firms. These policies directly impact cost structures for companies like Apple and compel businesses to reassess their global operating strategies.
In-Depth AI Insights
What do the surging AI capital expenditures imply for the long-term profitability models of tech giants? - The AI arms race is driving unprecedented capital expenditures by tech giants, a phenomenon that is not short-term but rather a long-term strategy reshaping industry competitive landscapes. - Investors are shifting from focusing on user growth and revenue scale to more rigorously scrutinizing the “efficiency returns” of AI investments, meaning the incremental profit generated per unit of investment. This indicates a declining market tolerance for