Dow Jones futures fall as tech earnings disappoint, Fed hike bets
- US index futures decline as weak earnings and forecasts from Amazon, Intel, and Alphabet dampened overall market sentiment.
- Third-quarter GDP grew 3.4%, beating estimates thanks to steady consumer spending and AI investment.
- The Federal Reserve held interest rates steady, with markets pricing a 75% chance of a December hike.
Dow Jones futures inches lower 0.05% to trade around 52,490, while S&P 500 futures fall 0.90% to around 7,680 and Nasdaq 100 futures decline over 2% to near 28,960.
US stock futures declined sharply as disappointing earnings reports from major technology companies weighed heavily on market sentiment. During pre-market trading, Amazon shares are down over 7% after the company missed both earnings and revenue estimates while announcing a significant increase in capital expenditures to accommodate rising demand for AI services. Intel sank nearly 23% following a weak quarter-ahead forecast, which it attributed to softening demand in the PC market. Meanwhile, SanDisk slipped nearly 4% despite delivering better-than-expected top and bottom-line results.
This pre-market weakness follows a losing regular trading session on Thursday, during which the tech-heavy Nasdaq Composite dropped 1.38%, while the Dow Jones Industrial Average and S&P 500 fell 0.25% and 0.3%, respectively. Alphabet, the parent company of Google, plummeted 12.6% after reporting softer search and advertising revenues, amplifying investor concerns about potential AI-driven disruptions to its core business.
The broader US economy showed resilient momentum, with US GDP growing at an annualized rate of 3.4% in the third quarter. This surpassed market expectations of 3.2%, fueled largely by consistent consumer spending and heavy investment in AI infrastructure. In light of these macroeconomic conditions, financial markets continue to anticipate further policy tightening. According to the CME FedWatch Tool, traders are pricing in roughly a 75% probability of a 25-basis-point rate hike in December, down slightly from 84.2% the previous day.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
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