U.S. stocks declined on Thursday, October 29, as a sharp selloff in Alphabet shares dragged the Nasdaq Composite lower and renewed concerns about the sustainability of artificial intelligence investments.
Technology and communication services stocks faced significant selling pressure following disappointing quarterly results from Google’s parent company. Meanwhile, investors reassessed the financial impact of massive AI infrastructure spending across major technology companies.
Despite weakness in the leading stock market indexes, several other sectors recorded gains as investors shifted capital toward healthcare, utilities, financials, and industrial stocks.
Nasdaq Falls Over 1% as Alphabet Shares Plunge
The Nasdaq Composite dropped 1.3% to 26,205.11 points at 12:55 ET, reflecting heavy losses among major technology companies.
Meanwhile, the benchmark S&P 500 declined 0.4% to 7,717.09 points, while the Dow Jones Industrial Average also fell 0.4% to 52,271.89 points.
Alphabet emerged as one of the biggest contributors to the market downturn, with its Class A shares sinking more than 12% following disappointing third-quarter earnings.
The decline intensified concerns about whether substantial investments in artificial intelligence infrastructure will eventually generate sufficient financial returns.
However, the broader market showed signs of resilience, suggesting that the weakness was concentrated primarily among heavyweight technology stocks.
Stock Market Rotation Favors Defensive Sectors
Although the three major U.S. stock indexes traded lower, market performance varied considerably across different industries.
An equal-weighted version of the S&P 500 gained nearly 1%, highlighting the strength of smaller index constituents compared with the largest technology companies.
Investors reduced exposure to communication services, technology, and consumer discretionary stocks while increasing allocations to other sectors.
Healthcare, utilities, financials, and industrial companies attracted buying interest as traders looked beyond the artificial intelligence investment theme.
Keith Lerner, chief investment officer and chief market strategist at Truist, described the shift as part of a broader market rotation.
He noted that the equal-weighted S&P 500 had recovered to its strongest level since early December, reflecting improving participation across the broader market.
The development suggested that investors were reallocating capital between sectors rather than abandoning equities altogether.
US Treasury Yields Decline as Investors Seek Safety
The weakness in technology stocks also increased demand for U.S. government bonds.
Investors purchased Treasury securities as they sought relatively defensive assets amid uncertainty surrounding AI-related investments.
Consequently, the benchmark 10-year U.S. Treasury yield declined by approximately 5.9 basis points to 4.992%.
Bond yields generally move in the opposite direction to bond prices. Therefore, stronger demand for government debt typically pushes yields lower.
The decline in Treasury yields also supported interest-rate-sensitive sectors, including utilities and real estate.
Meanwhile, investors continued monitoring whether the rotation away from major technology companies would develop into a broader market trend.
Alphabet Stock Crashes as AI Spending Raises Concerns
Alphabet’s disappointing third-quarter earnings became a major catalyst for the Nasdaq selloff.
The Google parent reported weaker-than-expected results, with disappointing advertising performance and rapidly increasing artificial intelligence spending weighing on investor sentiment.
Revenue growth in Google’s core services business fell short of market expectations, raising concerns about the company’s ability to maintain its traditional advertising momentum.
At the same time, Alphabet continued investing heavily in data centers, advanced computing systems, and other infrastructure needed to expand its AI capabilities.
Quarterly capital expenditures reached approximately $51.4 billion, representing an increase of around $6.5 billion from the previous quarter.
The substantial investment contributed to negative free cash flow of approximately $9.1 billion.
These figures intensified investor concerns about the financial demands associated with the ongoing AI infrastructure expansion.
Google’s AI Search Strategy Faces Monetization Challenges
Alphabet’s increasing reliance on artificial intelligence also raised questions about the future profitability of its search business.
Google has been expanding AI-powered search features as competition intensifies across the technology industry.
However, management indicated that monetization of certain AI search experiences remained less developed than traditional search advertising.
This creates a significant challenge for Alphabet because advertising continues to represent a major source of revenue.
Although artificial intelligence could strengthen user engagement and introduce new commercial opportunities, the technology also requires substantial infrastructure investment.
Consequently, investors are increasingly focused on whether the additional costs can be justified by future earnings growth.
Meta’s AI Investment Strategy Adds to Market Concerns
Alphabet’s results followed similar concerns surrounding Meta Platforms and its expanding artificial intelligence investments.
Meta recently reported negative quarterly free cash flow for the first time in more than a decade as capital expenditures continued rising.
The company has committed significant financial resources to developing AI models, expanding data center capacity, and supporting advanced computing infrastructure.
These investments have raised questions about the timing of future returns and the financial sustainability of aggressive capital spending.
Moreover, increased reliance on external financing across the technology industry has heightened investor scrutiny of balance sheets and cash generation.
The developments suggest that financial markets are becoming more selective when evaluating companies participating in the AI investment boom.
Microsoft Earnings Highlight Differences Among AI Leaders
Microsoft delivered a comparatively stronger quarterly performance, supported by continued growth in its cloud computing business.
The technology giant exceeded Wall Street’s revenue and earnings expectations, with its Azure cloud division remaining a major growth driver.
Microsoft also projected Azure revenue growth of approximately 49% to 50% in constant currency during the current quarter.
The guidance reinforced confidence in demand for cloud computing and AI-related services.
However, Microsoft shares surrendered earlier gains as broader technology sector weakness affected investor sentiment.
Separately, reports suggested that Microsoft was preparing to offer voluntary employee buyouts as part of its efforts to manage operating expenses.
The contrasting performances of Microsoft and Alphabet highlighted growing differences in how investors assess AI spending and financial discipline.
Amazon Earnings Become the Next Test for AI Stocks
Investors subsequently turned their attention toward Amazon’s upcoming quarterly earnings, scheduled for release after Thursday’s closing bell.
The company is another major participant in the artificial intelligence infrastructure expansion, particularly through its Amazon Web Services cloud business.
Market participants are expected to focus on Amazon’s capital expenditure plans, cloud revenue growth, and free cash flow performance.
Richard Reyle, chief investment officer at Questar Capital Partners, suggested that investors were increasingly distinguishing between companies making sustainable AI investments and those facing excessive financial pressure.
He indicated that Microsoft’s comparatively disciplined spending and stronger cash generation offered a more favorable example.
Meanwhile, Amazon’s results could provide additional clues about whether the broader technology industry can maintain its current pace of AI investment.
Samsung Shares Drop Despite Record Earnings
Technology sector uncertainty also extended beyond the United States.
Samsung Electronics shares declined more than 4% in South Korean trading after its semiconductor division’s operating profit failed to meet elevated analyst expectations.
The company also disappointed some investors by providing limited additional information about its potential shareholder return strategy.
Nevertheless, Samsung reported another strong quarter, supported by substantial demand for advanced memory chips and semiconductor products.
Group-wide operating profit reached approximately 107.4 trillion won, representing a record quarterly result.
However, the negative share price reaction demonstrated that strong financial performance does not always translate into stock market gains when investor expectations are exceptionally high.
Federal Reserve Holds Interest Rates as Markets Assess Inflation
Away from technology earnings, investors also evaluated the Federal Reserve’s latest monetary policy decision.
The Federal Open Market Committee (FOMC) kept its benchmark interest rate unchanged within the 3.75%–4.00% range on Wednesday.
The decision was approved by a 10–2 vote, with two policymakers supporting an immediate increase of 25 basis points.
Federal Reserve Chair Kevin Warsh emphasized the strength of U.S. economic activity and reaffirmed the central bank’s commitment to achieving its 2% inflation target.
However, he avoided providing a definitive outlook for future interest rate decisions.
Instead, policymakers indicated that incoming economic data would help determine whether additional monetary tightening would be necessary.
US GDP Growth Accelerates to 3.4% in Third Quarter
The latest economic figures reinforced expectations that the Federal Reserve could raise interest rates again before the end of 2026.
According to the Bureau of Economic Analysis (BEA), U.S. gross domestic product expanded at an annualized rate of 3.4% during the third quarter.
The reading exceeded economists’ consensus forecast of 3.2% and represented a significant acceleration from the second quarter’s 2.2% growth rate.
Stronger investment activity, resilient consumer spending, and increased government expenditure supported economic expansion.
The figures highlighted the American economy’s continued resilience despite elevated borrowing costs and geopolitical uncertainty.
However, stronger economic growth can also complicate inflation management by sustaining demand across the economy.
US PCE Inflation Remains Above Fed Target
Alongside the GDP report, the latest Personal Consumption Expenditures (PCE) inflation figures indicated that price pressures remained elevated.
Headline PCE inflation increased 0.5% month over month in September, while annual inflation climbed to 3.6%.
Meanwhile, the Core PCE Price Index, which excludes volatile food and energy prices, rose 0.3% monthly and 3.1% annually.
All four readings matched market expectations.
Nevertheless, both annual inflation measures remained above the Federal Reserve’s long-term 2% objective.
Chris Osmond, chief investment officer at Fifth Third Wealth Advisors, suggested that the combination of stronger economic growth and persistent inflation strengthened the case for another interest rate increase in December.
The latest figures also reinforced expectations that borrowing costs could remain elevated for an extended period.
European Central Bank Also Keeps Interest Rates Steady
Monetary policy developments were not limited to the United States.
The European Central Bank (ECB) also decided to maintain its key interest rates on Thursday, following the Federal Reserve’s decision a day earlier.
The ECB kept its deposit facility rate at 2.50% while acknowledging continued risks from rising energy prices and tighter financial conditions.
The decision highlighted the challenges facing major central banks as they attempt to control inflation without significantly weakening economic growth.
Consequently, investors will continue monitoring policy developments on both sides of the Atlantic.
Nasdaq Outlook Depends on AI Earnings and Fed Policy
Overall, the Nasdaq Composite faced renewed selling pressure as Alphabet’s disappointing earnings intensified concerns about the financial sustainability of artificial intelligence investments.
However, gains across defensive and economically sensitive sectors suggested that the broader U.S. stock market remained relatively resilient.
The divergence between major technology companies and the equal-weighted S&P 500 highlighted an ongoing shift in investor preferences.
Meanwhile, stronger U.S. economic growth and persistent inflation kept expectations of additional Federal Reserve interest rate increases alive.
Looking ahead, investors will focus on upcoming technology earnings, AI capital expenditure forecasts, inflation figures, and central bank commentary.
For now, the sustainability of AI-related spending and the direction of monetary policy remain two of the most important factors influencing the Nasdaq and broader U.S. stock market.
