[New York stock market close | October 29] Nasdaq 1.38%↓… AI investment burden highlighted by Alphabet's plunge

Dow fell 0.25%, S&P 500 fell 0.30%... Philadelphia semiconductor index falls 1.42%

Alphabet plunges 12.64%... Russell 2000 rose 1% amid strength in finance and healthcare

The three major indices of the New York Stock Exchange fell on the 29th (local time). Alphabet's earnings announcement highlighted the burden of cash spending due to increased investment in artificial intelligence (AI), leading large technology stocks to weaken. However, financial and healthcare stocks generally rose, and small and medium-cap stocks also showed strength, so the trends for each stock were mixed.

On this day, the Dow Jones Industrial Average closed at 52,342.56, down 132.54 points (0.25%) from the previous trading day. The Standard & Poor's (S&P) 500 Index closed at 7720.39, down 23.59 points (0.30%), and the Nasdaq Composite Index closed at 26,184.72, down 365.13 points (1.38%). The Philadelphia Semiconductor Index also fell 165.80 points (1.42%) to 11,518.20.

At the center of the decline was Google's parent company, Alphabet. Alphabet A shares plummeted 12.64%. Third quarter sales announced the previous day were $127.577 billion, a 25% increase from the same period last year, but fell short of the market expectation of about $128.2 billion compiled by financial information company LSEG. While Google Cloud sales increased by 103%, the sales growth rate of its flagship search business was only 12%.

Investment expenditures exceeded cash earned from operations. Alphabet's facility investment in the third quarter was approximately $51.4 billion, exceeding operating cash flow of approximately $42.3 billion. Accordingly, free cash flow was negative for two consecutive quarters, with a deficit of approximately $9.1 billion.

Software companies suffered significant losses due to disappointment in future growth prospects. ServiceNow fell 26.95% and Fortinet fell 20.09%. ServiceNow's forecast for the growth rate of contract balance to be recognized as sales within the next 12 months was below market expectations, and Fortinet lowered its annual service sales forecast. Salesforce and Palo Alto Networks also fell 4.63% and 3.53%, respectively.

Major semiconductor stocks also showed weakness. Nvidia fell 0.80%, Broadcom fell 1.94%, AMD fell 2.08%, and Micron fell 4.98%. Marvell Technology fell 13.24% on reports that it was in final negotiations to acquire Lumentum, a data center optical components company. On the other hand, semiconductor equipment companies KLA and Applied Materials rose 5.45% and 1.36%, respectively.

Caterpillar, which has benefited from demand for power generation equipment due to the expansion of AI data centers, also fell 9.25%. Although third-quarter sales and adjusted earnings per share exceeded market expectations, the company failed to meet heightened expectations while maintaining its annual sales growth forecast at the previous level.

Major healthcare stocks performed strongly. Eli Lilly rose 6.63% as it raised its annual sales forecast thanks to increased sales of diabetes and obesity treatments Maunjaro and Zebbound. The company's expected sales range for this year is $91 billion to $92 billion, up from the previous range of $85 billion to $87 billion. Merck rose 3.83%, and Gilead Sciences rose 4.03% in regular trading ahead of the earnings announcement scheduled for the day after the market closed.

Financial and consumption-related stocks also rose. JP Morgan Chase rose 1.26%, Visa rose 2.48%, and Mastercard rose 4.16%. Walmart and Home Depot rose 2.09% and 3.60%, respectively.

Among large technology stocks, Apple rose 1.48% and Meta rose 1.96%, showing a different movement from Alphabet. As the rising stocks were widely distributed, the decline in major indices did not lead to a weakness in the market as a whole. The Russell 2000 index, which focuses on small and mid-cap stocks, closed at 2859.22, up 1.01%. There were more stocks in the S&P 500 that rose than those that fell.

In the economic indicators announced along with corporate performance, expansion of growth and upward pressure on prices were confirmed at the same time. According to the U.S. Department of Commerce's Bureau of Economic Analysis (BEA), real gross domestic product (GDP) in the third quarter increased at an annual rate of 3.4% compared to the previous quarter. This is higher than the growth rate of 2.2% in the second quarter, and the expansion of investment growth and a rebound in government spending have accelerated the growth rate.

However, the September consumption index revealed a burden on household purchasing power. The personal consumption expenditures (PCE) price index increased by 3.6% compared to the same month last year and by 0.5% compared to the previous month. Core PCE prices excluding food and energy rose 3.1% and 0.3%, respectively. Nominal consumption expenditure increased by 0.5% from the previous month, but real consumption, excluding the impact of prices, barely increased, and real disposable income decreased by 0.3%.

Even after the market closed, major companies continued to announce their earnings. Amazon, which fell 4.25% in regular trading, fell further in after-hours trading after the earnings release. Although AWS sales increased 39% compared to the same period last year, the company's median sales forecast for the fourth quarter of $240 billion to $247 billion fell short of market expectations. Concerns about cash outflow due to large-scale facility investment also weighed down stock prices.

Intel also fell 3.62% in regular trading, and then greatly expanded its fall in after-hours trading after the earnings announcement. The sales outlook for the fourth quarter fell short of expectations, and production disruptions due to sluggish demand for PCs and an explosion at a factory in Israel had an impact. Reuters reported that Intel's stock price fell about 18% in after-hours trading as of press time.