Major tech stocks tumbled on Thursday as investors digested mixed earnings results from technology giants, with particular focus on AI-related investments and their returns. The S&P 500 and Nasdaq both declined, while the Dow Jones Industrial Average dropped over 200 points shortly after the opening bell, marking a second consecutive day of losses.
Microsoft and Meta Platforms reported after-hours Wednesday, with both companies beating earnings estimates but disappointing investors with forward guidance. Microsoft shares fell more than 4% after the company projected slower growth in its cloud computing business, a critical segment for its AI infrastructure investments. Meta shares declined over 2% following its forecast of “significant” capital expenditure growth in the coming year, largely attributed to continued heavy investments in AI technology and infrastructure.
The earnings season provided a stark contrast to Alphabet’s earlier results, which generated investor enthusiasm when CEO Sundar Pichai declared the company’s AI investments are “paying off.” This positive reception highlighted the market’s sensitivity to AI-related returns and the pressure on tech companies to demonstrate tangible results from their substantial AI spending.
Investors awaited earnings from Apple and Amazon after market close Thursday, with particular attention on whether AI is driving iPhone demand following Apple’s rollout of its iOS 18.1 update earlier in the week. The update includes new AI-powered features that Apple hopes will reinvigorate device sales and justify its position in the AI race.
On the economic front, the personal-consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, cooled to 2.1% year-over-year in September from 2.2% in August, showing progress toward the Fed’s 2% target. However, the core PCE index came in hotter than expected at 2.7%, excluding volatile food and energy prices. Jobless claims fell to 216,000, beating economist expectations of 230,000 and dropping 12,000 from the previous week.
Adding to market discussions, SoftBank CEO Masayoshi Son suggested Nvidia stock remains undervalued, arguing that AI companies need to invest another $9 trillion to achieve artificial superintelligence, underscoring the massive capital requirements still ahead for the AI industry.
Key Quotes
the company’s AI investments are ‘paying off’
Alphabet CEO Sundar Pichai made this statement when discussing the company’s earnings results, which generated significant investor enthusiasm. This quote matters because it represents one of the first clear declarations from a major tech CEO that AI spending is delivering measurable returns, setting a benchmark that other companies are now being measured against.
significant capital expenditures growth next year
Meta forecasted this increase in spending during its earnings call, directly contributing to the stock’s 2% decline. This matters because it signals that the AI infrastructure buildout is far from complete, and investors are growing concerned about when these investments will generate positive returns rather than simply consuming capital.
AI companies need to spend another $9 trillion to achieve superintelligence
SoftBank CEO Masayoshi Son made this bold claim while arguing that Nvidia stock is undervalued. This quote is significant because it quantifies the staggering investment still required in the AI sector and suggests that current market valuations may not fully reflect the infrastructure spending wave ahead, though it also raises questions about the feasibility and timeline of such massive capital deployment.
Our Take
The market’s divergent reactions to tech earnings reveal a maturing AI investment cycle where investors are separating winners from pretenders. Microsoft’s stumble is particularly telling—despite being an AI leader through OpenAI partnership and Azure integration, slower cloud growth suggests enterprise AI adoption may be hitting friction points around cost, implementation complexity, or unclear ROI. Meta’s escalating capex forecast raises sustainability questions: how long can companies justify massive AI spending without proportional revenue growth? The $9 trillion superintelligence figure from SoftBank seems designed to justify Nvidia’s valuation, but it also highlights an uncomfortable truth—we’re still in the early innings of AI infrastructure buildout, and the path to profitability remains uncertain. Apple’s results will be crucial in determining whether consumer AI applications can drive tangible demand, potentially opening a new front in the AI monetization battle beyond enterprise cloud services.
Why This Matters
This market movement reflects a critical inflection point for the AI industry: investors are no longer satisfied with promises of future AI returns and are demanding concrete evidence that massive capital expenditures are translating into revenue growth. Microsoft’s cloud slowdown warning is particularly significant as Azure has been a primary vehicle for delivering AI services to enterprises, suggesting potential market saturation or delayed AI adoption among businesses.
Meta’s forecast of escalating AI infrastructure costs highlights the industry-wide challenge of balancing innovation with profitability. The divergent market reactions to Alphabet versus Microsoft and Meta demonstrate that investors are becoming more discriminating about AI investments, rewarding companies that can articulate clear ROI while punishing those with open-ended spending commitments.
The focus on Apple’s AI-driven iPhone demand represents a test case for whether consumer-facing AI features can drive hardware upgrade cycles, potentially validating a new revenue model for the industry. Meanwhile, SoftBank’s $9 trillion superintelligence claim underscores the enormous capital requirements ahead, raising questions about market sustainability and which companies can afford to remain competitive in the AI arms race.
Recommended Reading
For those interested in learning more about artificial intelligence, machine learning, and effective AI communication, here are some excellent resources:
Recommended Reading
Related Stories
- Apple Q4 Earnings Preview: Wall Street Sees AI Fueling iPhone Demand in 2024
- Wall Street Asks Big Tech: Will AI Ever Make Money?
- Google’s Gemini: A Potential Game-Changer in the AI Race
- Legendary Investor Jeremy Grantham Predicts Stock Market Crash and AI Bubble Burst by 2024
- The AI Hype Cycle: Reality Check and Future Expectations