Major stock indexes fell sharply on Thursday after Microsoft and Meta Platforms highlighted growing artificial intelligence costs that could hit their earnings, curbing enthusiasm for megacaps that have fueled the market rally this year.
The souring sentiment on Wall Street spread to Canada, where the S&P/TSX Composite Index suffered its worst session in three months and gave back much of its gain for October. It lost 1.4% during the session, with tech stocks among the biggest decliners.
More turbulence for technology investors erupted after markets closed, when the biggest of the megacaps, Apple, reported quarterly results that included a slump in its net income after paying a one-time charge as part of a tax decision in Europe. Its shares were lower in extended trading.
In regular trading, shares of Meta Platforms slipped 4.1% and Microsoft fell 6%, despite both companies beating earnings estimates in results reported after the bell on Wednesday. Shares of Alphabet, which reported on Tuesday, also fell.
Microsoft and Facebook-owned Meta Platforms both said capital expenses were growing due to AI investments, which could reduce profitability.
“You had three of the Magnificent Seven all say they basically have open-ended budgets for AI spend and investors don’t like to hear that,” said Carol Schleif, chief investment officer at BMO Family Office. “The intermediate and longer-term implications of this buildout are really important for U.S. long-term growth and long-term productivity. ... In the short run, investors are asking where’s the profit from it?”
Both Microsoft and Meta Platforms have soared in recent years amid a frenzy around AI, and they’re entrenched among Wall Street’s most influential stocks. But such stellar performances have critics saying their stock prices have simply climbed too fast, leaving them too expensive.
The S&P 500 sank 1.9% for its worst day in eight weeks while the Nasdaq composite tumbled 2.8% for a second straight loss after setting its latest all-time high.
Apple did beat Wall Street sales and profit expectations for its fiscal fourth quarter, bolstered by strong early sales of iPhone 16, a set of phones designed for new AI features that was released near the end of the quarter. Apple said sales were US$94.93 billion, ahead of Wall Street targets of $94.58 billion, according to LSEG. Earnings of $1.64 per share, excluding the massive one-time tax charge in the European Union, topped analyst expectations of $1.60 per share.
Sales of its iPhone, the company’s main product, were up 5.5% to $46.22 billion, compared with analyst estimates of $45.47 billion. Other product lines missed expectations and the China sales total was less than Wall Street expected, all of which helped send shares down 1.4% in extended trading.
Amazon.com also released its latest earnings after markets closed on Thursday, posting third quarter profit and sales that beat Wall Street estimates. That sent its shares up 4% after the closing bell, which more than made up for the decline during regular trading. Net income was $15.3 billion, up 55% from 2023′s $9.9 billion. Analysts said they were impressed by the improvement in Amazon’s margins.
Intel also reported earnings after the close. The chipmaker reported better-than-expected revenue and issued quarterly guidance that topped estimates, sending its shares up 9% in extended trading.
For the regular trading day in Toronto, the S&P/TSX composite index ended down 350.92 points, or 1.43%, at 24,156.87, its lowest closing level since Oct. 8. For the month, the index was up 0.65%, its fourth straight monthly increase.
The materials group, which includes fertilizer companies and metal mining shares, fell 2.4% as gold pulled back from a record high. Still, the index has climbed more than 30% since the start of 2024.
Financials were down 1.4% in Toronto, while technology ended 2.8% lower, with Open Text Corp losing 11.1% after reporting quarterly revenue that missed analysts’ estimates.
Energy fell 1.2%, with Cenovus Energy Inc down 3.4% after posting a 56% slump in third-quarter profit due to a decline in production.
Bausch Health Companies Inc was a bright spot, with its shares jumping 12.7% after the drugmaker reported stronger-than-expected third-quarter earnings.
In U.S. economic news Thursday, the Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation metric, rose 0.2% in September, in line with economists’ expectations. However, the core figure was 2.7% year-over-year, slightly above the 2.6% forecast, while consumer spending increased a little more than expected.
After the data, traders stuck to bets for a 25-basis-point rate reduction in the Fed’s Nov. 6-7 meeting.
In U.S. stock moves, Estee Lauder posted its worst day on record, dropping 20.9% after the cosmetics company withdrew its 2025 annual forecasts.
Shares of Uber Technologies fell 9.3% after the ride-hailing company forecast fourth-quarter gross bookings below expectations.
With reports from Reuters and The Associated Press
Reuters, Globe staff