(Reuters) – Futures tied to the Nasdaq fell sharply on Wednesday, as quarterly earnings from Tesla and Alphabet underscored investor concerns around the dominance of Big Tech stocks that have boosted Wall Street to all-time highs.
Tesla slumped 6.9% in premarket trading after reporting its lowest profit margin in over five years and missing second-quarter earnings expectations, as the EV maker cut prices to revive demand and increased spending on AI projects.
Google parent Alphabet, too, shed 2.8% after flagging that capital expenses would remain high for the year, despite a second-quarter results beat.
“The first view on Big Tech earnings wasn’t inspiring,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Two of the Magnificent 7 stocks failed to create euphoria when they reported their Q2 results. The less-than-ideal set of earnings comes at a time when investors are questioning whether the AI rally has gotten ahead of itself.”
Most of the so-called Magnificent Seven, a bunch of megacap tech stocks, have notched double- to triple-digit percentage gains so far in 2024, riding on optimism around AI and an early start to Federal Reserve rate cuts.
As the elite group of stocks, barring Tesla, have steered the benchmark S&P 500 and the tech-heavy Nasdaq to record highs this year, market participants have turned wary around the valuation of these companies and have flocked to other underperforming sectors.
While investors are parsing the ongoing earnings season for clues on the health of corporate America in the face of decades-high interest rates, results from the tech giants will be key to determine if the Wall Street rally has more steam left.
Other megacaps including Apple, Microsoft, Amazon.com, Meta Platforms and Nvidia were down between 0.5% and 2%.
Later in the day, investors will also parse economic data including the S&P Global’s flash PMI, while Friday’s personal consumption expenditures (PCE) price index will further set the tone around the U.S. monetary policy path.
Traders have priced in a near-92% chance of a 25 basis points interest rate cut by the Fed by its September meeting, as per CME’s FedWatch Tool.
At 4:57 a.m. ET, Dow e-minis were down 177 points, or 0.44%, S&P 500 e-minis were down 36.75 points, or 0.66%, and Nasdaq 100 e-minis were down 182.25 points, or 0.91%.
Further on the earnings front, solar inverter maker Enphase Energy jumped 6.9% after beating estimates for second-quarter operating profit.
While Texas Instruments rose 2.5% after a second-quarter profit beat, Visa dropped 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 H K)
