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Market Drop as Meta, Microsoft Warnings Weigh Heavy on Nasdaq; Dollar Softens Post U.S. Data

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Global stock markets took a downturn on Thursday, led by a 2% drop in the Nasdaq index following cost warnings from Meta Platforms and Microsoft over artificial intelligence investments. Meta and Microsoft shares slid 3.2% and 5.6%, respectively, raising investor concerns over the time it will take to see returns on AI expenses. Both companies’ declines contributed to negative momentum on the Nasdaq and S&P 500. Attention now shifts to Amazon and Apple, which are set to release their results later.

U.S. consumer spending data showed a slight uptick in September, pushing the economy onto a stronger growth path for Q4. However, the increase is largely attributed to essential spending areas such as healthcare and housing. The dollar saw minor weakening, with notable losses against the yen after the Bank of Japan’s unexpectedly less dovish stance, and the euro gained ground due to unexpectedly high inflation figures in the Eurozone for October.

The dollar index remained steady at 104.13, while the euro inched up to $1.0866, and the dollar slipped 0.53% to 152.59 yen. As the November Fed meeting approaches, market sentiment sees a 25-basis-point rate reduction as likely, but a double cut in November and December stands at a 70% probability per the CME FedWatch Tool. Key upcoming data include the U.S. October jobs report and next week’s presidential election, where polling shows tight competition between Republican Donald Trump and Democratic VP Kamala Harris.

On Wall Street, the Dow dropped 362.70 points (0.86%) to 41,778.84, the S&P 500 shed 84.93 points (1.46%) to 5,728.74, and the Nasdaq Composite slid 425.71 points (2.29%) to 18,182.22. MSCI’s global index (.MIWD00000PUS) dropped 1.27%, while Europe’s STOXX 600 fell 1.5%, reaching a seven-week low amid a busy earnings period.

In U.S. Treasuries, yields edged higher with the 10-year benchmark up 4.4 basis points at 4.309%, following reports of declining wage inflation coupled with robust consumer spending.

Cryptocurrencies followed the downward trend, with Bitcoin declining 3.02% to $70,640.00 and Ethereum dropping 4.98% to $2,545.70. Gold prices retreated from record highs but stayed on track for a fourth consecutive monthly increase, down 0.7% to $2,766.59 per ounce after peaking at $2,790.15 earlier. Oil prices saw gains, with U.S. crude rising 1.33% to $69.52 per barrel and Brent climbing 0.94% to $73.23 per barrel.

 

Big Tech’s AI Investment Surge Stirs Investor Concerns Over Profitability

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Big technology companies like Microsoft, Meta, and Alphabet are ramping up investments in AI infrastructure, sparking concerns on Wall Street over the returns on these large expenditures. As they aim to meet growing demand for AI applications, Microsoft and Meta revealed on Wednesday that their capital expenses are rising due to increased spending on AI infrastructure, with Alphabet also reporting sustained high expenditures earlier in the week. Amazon is expected to follow a similar path, set to report results on Thursday.

These AI investments are eating into the companies’ high margins, making profitability a key concern among investors. On Thursday, shares in these companies fell, reflecting investor anxiety about balancing long-term AI development costs with the need for short-term financial performance. Despite surpassing revenue and profit expectations for the July-September quarter, Meta’s stock dropped by more than 3%, while Microsoft fell 6%, and Amazon saw a 3% decline as well.

Analysts highlight the high costs associated with operating AI technology and expanding capacity. Beatriz Valle of GlobalData remarked, “It’s costly to run AI technology. Getting capacity is expensive.” This fierce competition for AI infrastructure could mean delayed returns on these investments. Microsoft’s quarterly capital expenses now exceed its full-year spending from just three years ago, while Meta’s quarterly spending aligns with its entire annual budget from 2017. Microsoft announced a 5.3% rise in capital spending, totaling $20 billion, and anticipates further spending increases in the coming quarters as it pursues its AI goals.

However, Microsoft also warned of potential slowdowns in growth for its cloud service, Azure, due to limitations in data center capacity, adding pressure to investor concerns. Analyst Gil Luria at D.A. Davidson pointed out the potential for a prolonged margin impact, noting that heavy investment years like this one could reduce margins by a percentage point for up to six years.

Capacity constraints are also affecting the broader tech industry, with chipmakers like Nvidia and AMD struggling to meet surging AI chip demand. AMD recently indicated that supply will likely remain tight into next year, further limiting cloud providers’ ability to expand AI capacity. Despite these challenges, Meta and Microsoft are doubling down on AI’s long-term potential, comparing today’s AI investments to the early days of cloud technology development.

Meta’s CEO Mark Zuckerberg emphasized that while building infrastructure may not satisfy short-term investor expectations, the potential rewards justify continued investment. He stated on Wednesday’s earnings call, “We’re going to continue investing significantly in this.”

 

Meta Introduces Gen AI Model for Video and Audio Creation, Challenging OpenAI’s Offerings

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Meta has unveiled its latest generative AI model, Movie Gen, designed to create both video and audio clips in response to user prompts. This move positions Meta in direct competition with leading media generation tools from companies like OpenAI and ElevenLabs. According to Meta, Movie Gen can produce highly realistic videos paired with synchronized audio, all driven by AI. This new tool is part of the company’s broader push to integrate AI-driven content creation into its platforms.

Meta has demonstrated the model’s capabilities by sharing samples of generated videos. These examples include animals engaging in various activities such as swimming and surfing, as well as depictions of real individuals, created from their actual photos, performing actions like painting on a canvas. This versatility sets Movie Gen apart, as it promises not only dynamic visual creation but also detailed personalizations of user-provided images.

What makes Movie Gen particularly intriguing is its ability to generate background music and sound effects that are synchronized with the visual content of the videos. Meta has positioned this functionality as a significant leap forward, claiming that the model can produce more immersive experiences by aligning both sound and visuals. Moreover, users can leverage the tool to edit existing videos, making it a valuable asset for creators looking to enhance their content with AI-generated elements.

This announcement marks Meta’s continued investment in artificial intelligence and its desire to lead the next phase of content creation. By rolling out tools like Movie Gen, Meta aims to provide creators with innovative ways to produce and customize media, making AI-driven storytelling accessible to a broader audience.