U.S. stocks closed lower Thursday as Alphabet’s disappointing earnings and rising artificial intelligence expenses triggered a technology-sector selloff, while stronger-than-expected economic growth and persistent inflation complicated the Federal Reserve’s interest rate outlook.
By yourNEWS Media Newsroom
NEW YORK — U.S. stocks declined Thursday, October 29, as investors questioned the profitability of major technology companies’ enormous artificial intelligence investments following disappointing quarterly results from Google parent Alphabet, sending the Nasdaq Composite down 1.37%.
All three major stock indexes finished lower, with the technology-heavy Nasdaq experiencing the largest decline as Alphabet shares plunged 12.6%, erasing hundreds of billions of dollars in market value.
According to Reuters’ closing market report, the Dow Jones Industrial Average fell 132.54 points, or 0.25%, to close at 52,342.56.
The S&P 500 declined 23.59 points, or 0.30%, to 7,720.39, while the Nasdaq Composite lost 365.13 points to finish at 26,184.72.
The selloff followed Alphabet’s Wednesday evening earnings announcement, which showed weaker-than-expected revenue alongside accelerating spending on artificial intelligence infrastructure.
Investors responded to concerns about the company’s ability to generate sufficient returns from its rapidly expanding expenditures on computing equipment, data centers and other AI-related investments.
Alphabet’s quarterly results also raised questions about the company’s traditional search advertising business, which remains a major contributor to its revenue.
Although Alphabet reported substantial growth in its Google Cloud business, the results failed to offset concerns about its overall financial performance and capital expenditures.
The company’s shares suffered their largest percentage decline in years, weighing heavily on the Nasdaq and the S&P 500’s communication services sector.
The decline also affected other technology companies as investors reassessed the costs associated with expanding artificial intelligence capabilities.
Semiconductor stocks fell 1.4%, ending a four-day winning streak.
The downturn reflected growing distinctions among investors between companies generating sufficient cash flow to finance their AI expansion and businesses relying more heavily on borrowing or other financing arrangements.
Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky, said the weakness in major technology shares did not necessarily indicate broader economic deterioration.
“A risk-off day like this, with small caps outperforming, is a good sign that thus far the market’s interpretation of cracks in the AI story doesn’t mean cracks in every corner of the market,” Mayfield told Reuters.
“There’s plenty of other places to go with your money outside of the AI trade that have pretty decent prospects.”
That distinction was reflected in the Russell 2000 index of smaller publicly traded companies, which advanced 1%, outperforming the major large-cap benchmarks.
Market breadth was also stronger than the headline index declines suggested.
Advancing stocks outnumbered declining stocks by nearly two to one on the New York Stock Exchange. Nasdaq gainers also outnumbered losers, despite the technology-heavy index’s substantial decline.
The divergence illustrated the influence of heavily weighted technology companies on major stock indexes.
Thursday’s trading followed the Federal Reserve’s decision Wednesday to leave its benchmark interest rate unchanged.
Federal Reserve policymakers acknowledged that inflation remained elevated and indicated they would evaluate additional economic information before determining future monetary policy.
The central bank’s decision came as investors monitored whether continued price increases would require interest rates to remain elevated or potentially rise further.
New economic data released Thursday showed that the U.S. economy continued growing at a relatively strong pace during the third quarter.
The Commerce Department’s initial estimate placed annualized gross domestic product growth at 3.4%, exceeding analysts’ expectations.
The expansion reflected continued consumer spending and business investment, including spending associated with artificial intelligence infrastructure.
However, inflation data also indicated that price pressures were accelerating.
The Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index, increased 3.6% over the 12 months ending in September.
Higher energy costs associated with disruptions stemming from the conflict involving Iran contributed to the inflationary pressures.
The combination of stronger economic growth and persistent inflation complicated expectations for interest rate policy.
Investors have been evaluating whether the Federal Reserve will need to maintain restrictive borrowing conditions for longer than previously anticipated.
Higher interest rates can affect technology companies particularly strongly because investors often value those businesses based on expectations of substantial future earnings.
When borrowing costs rise, the present value of expected future profits can decline, creating pressure on share prices.
The latest corporate earnings reports added to those concerns.
Cybersecurity company Fortinet and enterprise software provider ServiceNow each suffered stock declines exceeding 20% following their quarterly announcements.
The losses contributed to broader weakness across software and technology companies.
Marvell Technology shares dropped 13.2% following reports that the semiconductor company was in advanced discussions to acquire optical networking equipment manufacturer Lumentum Holdings.
Lumentum shares rose 0.6%.
Outside the technology sector, several companies reported contrasting results.
Construction equipment manufacturer Caterpillar exceeded analysts’ quarterly profit expectations but left its growth targets unchanged, disappointing investors who had anticipated a stronger outlook.
Caterpillar shares fell 9.3%.
Pharmaceutical company Eli Lilly advanced 6.6% after raising its revenue outlook following strong sales of weight-loss medications.
Automaker Ford gained 12.4% after reporting third-quarter revenue above expectations.
Drugmaker Merck rose 3.8% after exceeding earnings forecasts, supported by sales of its cancer treatment Keytruda and HPV vaccine Gardasil.
The mixed company performances demonstrated that Thursday’s selling was not uniform across the market.
Investors continued rewarding companies that reported favorable financial results while reducing exposure to businesses facing concerns about spending, profitability or future growth.
Corporate earnings have generally remained strong during the third-quarter reporting period.
According to LSEG data cited by Reuters, 253 companies in the S&P 500 had reported quarterly results by Thursday, with approximately 81% exceeding analysts’ expectations.
Analysts projected aggregate third-quarter earnings growth of 31% compared with the same period in 2025.
Those results suggested that many major American businesses continued producing strong profits despite inflation and elevated borrowing costs.
However, investors have increasingly focused on whether future earnings will justify the substantial investments being made in artificial intelligence.
The technology industry’s AI expansion has required major expenditures on advanced semiconductors, networking equipment, electricity and data center infrastructure.
Those investments have helped support economic activity, but they have also raised questions about how quickly companies can convert new computing capacity into profitable products and services.
Alphabet’s results brought those questions to the forefront of Thursday’s trading.
The concerns continued after the closing bell when Amazon reported quarterly results and issued fourth-quarter sales guidance that disappointed investors.
Amazon shares fell 6.5% in extended trading, adding to the pressure surrounding major technology companies’ financial outlooks.
Trading volume on U.S. exchanges totaled approximately 17.05 billion shares, compared with the 20-session average of 17.09 billion.
The S&P 500 recorded 19 new 52-week highs and six new lows, while the Nasdaq registered 88 new highs and 191 new lows.
The figures reflected weakness concentrated in selected technology and growth-oriented stocks rather than a marketwide retreat of comparable magnitude.
Thursday’s losses interrupted recent gains in the major stock indexes as investors balanced strong economic growth and corporate profitability against higher inflation and questions about artificial intelligence investment returns.
With additional corporate earnings and economic reports approaching, investors will continue assessing whether major technology companies can generate sufficient revenue and profits to support their expanding AI expenditures.
The Nasdaq’s 1.37% decline and Alphabet’s 12.6% drop highlighted those concerns, while gains among smaller companies and selected industrial, pharmaceutical and automotive stocks demonstrated continued investor interest outside the largest technology firms.
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