(Reuters) – Futures linked to the Nasdaq fell sharply on Wednesday after quarterly earnings from Tesla and Alphabet underlined investor concerns about the dominance of Big Tech stocks, which have pushed Wall Street to record highs.
Tesla fell 6.9% in premarket trading after reporting its lowest profit margin in more than five years and missing second-quarter earnings estimates as the EV maker cut prices to revive demand and increased spending on AI projects.
Google parent Alphabet also lost 2.8% after signaling that capital expenditures would remain high this year despite a better second-quarter result.
“The initial look at Big Tech’s profits was uninspiring,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Two of the Magnificent 7 stocks failed to create euphoria when they reported their second-quarter results. The less-than-ideal earnings numbers come at a time when investors are wondering whether the AI rally has gotten ahead of itself.”
Most of the so-called Magnificent Seven, a group of mega-cap tech stocks, have posted double- to triple-digit percentage gains so far in 2024, riding on optimism around AI and an early start to interest rate cuts by the Federal Reserve.
While the elite group of stocks, excluding Tesla, have driven the benchmark S&P 500 and the tech-heavy Nasdaq to record highs this year, market participants have grown wary of these companies’ valuations and flocked to other underperforming sectors .
As investors analyze the ongoing earnings season for clues about the health of corporate America in the face of decades of high interest rates, the tech giants’ results will be crucial in determining whether Wall Street’s rally has any more momentum left. has.
Other megacaps, including Apple, Microsoft, Amazon.com, Meta Platforms and Nvidia, fell between 0.5% and 2%.
Later in the day, investors will also analyze economic data, including S&P Global’s flash PMI, while Friday’s Personal Consumer Expenditure (PCE) price index will continue to set the tone on US monetary policy.
Traders have priced in a nearly 92% chance of a 25 basis point Fed rate cut at the September meeting, according to CME’s FedWatch Tool.
At 4:57 a.m. ET, the Dow e-minis were down 177 points (or 0.44%), the S&P 500 e-minis were down 36.75 points (or 0.66%) and the Nasdaq 100 e-minis were down 182.25. points or 0.91%.
Further on the earnings front, solar inverter maker Enphase Energy rose 6.9% after beating second-quarter operating profit expectations.
While Texas Instruments rose 2.5% after a second-quarter profit margin, Visa fell 3% after third-quarter revenue growth fell short of expectations, in a rare miss for the world’s largest payments processor.
(Reporting by Ankika Biswas in Bengaluru; Editing by Varun HK)