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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.”

 

Microsoft Accuses Google of Running “Shadow Campaigns” to Influence European Regulators

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Microsoft publicly accused Google of orchestrating “shadow campaigns” in Europe, claiming Google is backing a consortium to sway European regulators against Microsoft. According to a blog post by Microsoft’s attorney Rima Alaily, Google allegedly hired DGA Group, a consulting firm, to form the Open Cloud Coalition, which includes certain European cloud companies.

Alaily asserted that the coalition is an “astroturf group” organized to undermine Microsoft and influence policymakers under the guise of promoting “a fair, competitive, and open cloud services industry.” Alaily linked a flyer for the Open Cloud Coalition, which aims to address competition in cloud services across the UK and EU, with Google reportedly backing it financially and providing resources.

Google, under increasing scrutiny in both Europe and the U.S. — where it faces its second antitrust trial — responded, emphasizing its own concerns over Microsoft’s alleged anticompetitive practices. Google maintains that Microsoft’s licensing agreements for Windows Server create unfair conditions that limit customer choice and stifle innovation, impacting both cybersecurity and market competitiveness. In September, Google filed a complaint with the European Commission, specifically calling out Microsoft’s Windows Server licensing practices. Microsoft counters that its clients benefit by saving up to 36% when using Windows Server on its own cloud infrastructure compared to Amazon’s.

Alaily further alleged that Google has repeatedly aimed to disrupt Microsoft’s standing in both the U.S. and Europe. She highlighted Google’s financial support for the Coalition for Fair Software Licensing, which in 2023 petitioned the U.S. Federal Trade Commission to investigate Microsoft’s cloud licensing practices. Additionally, Alaily claimed that Google offered $500 million to members of the Cloud Infrastructure Services Providers in Europe to oppose a potential antitrust settlement related to Microsoft, which eventually was resolved in July.

The two tech giants, competing for dominance in cloud services, online advertising, and productivity software, continue to clash, with Google’s alleged covert campaigns adding fuel to their intensifying rivalry.