Wall Street slides as Alphabet punished over growing cash burn

US tech stocks soured on Wall Street as Alphabet’s disappointing earnings renewed concerns about whether the massive spend on artificial intelligence infrastructure will deliver returns, even as Microsoft’s latest bond offering attracted strong demand.

European markets rallied as the European Central Bank kept its benchmark rate unchanged, as expected, while president Christine Lagarde announced an early exit from the monetary authority, which is grappling with France’s increasingly indebted position and elevated energy prices.

Oil prices eased on news that US vice-president JD Vance contacted Iran to try to revive peace talks, while European energy companies Shell and TotalEnergies posted stronger profits and increased shareholder returns.

And Australian futures are pointing to a positive start for the ASX, while local data today include ANZ’s monthly consumer confidence report and Statistics New Zealand’s household living cost index.

Easy as ABC

Alphabet tumbled 13% in late trading, with investors facing a US$500 billion wipeout in value after the company’s quarterly result reported negative free cash flow for a second period in a row, with AI search eating into its traditional search business.

Meanwhile, Microsoft’s decline was more modest as its earnings beat expectations with strong growth in its cloud business, and a US$25 billion bond offering attracted US$115 billion of demand, according to a Bloomberg report.

“The contrast highlights the market’s changing demands: strong cloud growth is welcome, but investors increasingly want evidence that enormous infrastructure spending can translate into sustainable cash flow,” Moomoo market strategy consultant Greg Boland said in a note.

Stocks on Wall Street declined as investors shifted out of companies linked to the AI trade, with Amazon’s result after the bell the sector’s next test. The tech-heavy Nasdaq Composite dropped 1.7% in late trading, while the S&P 500 and Dow Jones Industrial Average were both down 0.6%. The Dow was led lower by Alphabet and Caterpillar, which only just beat earnings expectations.

Pharmaceutical companies were broadly stronger, with Eli Lilly & Co, Merck & Co and Bristol Myers Squibb all lifting their forecast earnings for the year.

Meanwhile, data showed the US economy grew at an annual pace of 3.4% in the September quarter, with business investment and consumer spending supporting its expansion.

European stocks were stronger, with the UK’s FTSE 100 up 0.3%, Germany’s DAX up 1.3% and France’s CAC 40 gaining 1.1%.

Another hold

The ECB kept its key deposit rate at 2.5%, as expected, with officials saying they weren’t seeing signs of the energy shock feeding into a second round of price increases yet.

Stuart Ritson, senior interest rate strategist at Bank of New Zealand, said the ECB struck a dovish tone, despite the elevated commodity prices.

“The ECB reiterated its data-dependent, meeting-by-meeting approach, leaving the door open to another hike in December, with markets still pricing around an 80% chance,” Ritson said.

Separately, ECB president Lagarde said she’d leave the central bank in February, nine months before the end of her term.

Brent crude oil futures fell 0.4% to US$114.81 at 7am in Auckland after the Wall Street Journal reported US vice-president Vance wrote to Mohsen Rezaei, Iran’s secretary of the Supreme National Security Council, in a bid to restart peace negotiations.

Shell and TotalEnergies reported surging profit in the September quarter and increased share buybacks on the elevated oil prices, while the Wall Street Journal reported Chevron was expanding frontier exploration after years of pulling back.

Australian futures are pointing to a 0.2% gain for the S&P/ASX 200 index, shrugging off the tech decline on Wall Street.

The ASX 200 is on track for a 1.2% gain in October, while New Zealand’s S&P/NZX 50 index is down 0.9% heading into the final session of the month.

The kiwi dollar traded at 56.29 US cents at 7am from 56.21 cents yesterday, and rose to 80.04 Australian cents from 79.71 cents.

Local data today include Stats NZ’s September quarter household living cost price index and ANZ’s monthly consumer confidence survey.

On the NZX, Third Age Health Services is due to report its first-half result, while Barramundi holds its annual meeting in Auckland today, with Fisher Funds’ management contract under review over its recent performance.

Reporting by Paul McBeth. Image from Solen Feyissa on Unsplash.