S&P 500 and Nasdaq Slide as AI Spending Concerns Hit Meta and Microsoft

 US stocks retreated on Thursday as Meta Platforms and Microsoft Corp sank on concerns about surging AI infrastructure spending, cooling investor optimism after a streak of record highs and raising new questions about whether the Federal Reserve will maintain its dovish tilt.

Tech Pullback Leads Market Decline

The S&P 500 fell 0.5% to 6,855.82, and the Nasdaq Composite dropped 1.14% to 23,685.59, while the Dow Jones Industrial Average edged higher by 0.4% to 47,822.04.

• Meta plunged 11.8%, marking its steepest drop in three years after projecting “notably larger” capital expenditures next year to fund AI development.

• Microsoft declined 3.5% after reporting a record US$35 billion in quarterly capex and warning that spending will continue to rise.

“We’re having a reset given the high expectations for the Fed and tech earnings were both called into question overnight,” said Ben Laidler, head of equity strategy at Bradesco BBI.

The losses followed a strong run in US equities, with all three major indices touching record highs over the past week, supported by upbeat earnings and hopes for policy easing.

AI Frenzy Faces a Reality Check

The market’s AI-driven bull run faced a pause after two of its biggest beneficiaries showed signs of rising costs outpacing near-term revenue growth.

Still, optimism in the broader tech sector remained intact — Alphabet climbed 4.9% after reporting solid gains in advertising and cloud businesses, and Nvidia earlier became the first listed firm to exceed US$5 trillion in market capitalisation.

According to LSEG, 84.2% of S&P 500 companies reporting so far have beaten earnings expectations, above the four-quarter average of 77% — a sign that corporate fundamentals remain resilient despite volatility.

Fed Signals Uncertainty on Rate Cuts

The Federal Reserve delivered its second consecutive quarter-point rate cut on Wednesday, but Chair Jerome Powellwarned that another move in December was “not a foregone conclusion.”

Traders trimmed expectations for another cut next month to around 70%, down from 90% earlier in the week.

This cautious message weighed on risk sentiment, especially across high-valuation tech names that have benefitted from lower yields.

Trade Truce Adds Limited Relief

A new US–China trade agreement also failed to lift sentiment.

President Donald Trump agreed to roll back some tariffs in exchange for Chinese commitments to resume soybean purchases, maintain rare earth exports, and tighten fentanyl controls.

While the truce reduced near-term tensions, analysts said it falls short of addressing deeper strategic and technology issues.

Stock Movers

• Cardinal Health surged 13.3% after raising its full-year profit outlook.

• Chipotle Mexican Grill slumped 15.5% after cutting its sales forecast due to margin pressure from tariffs and inflation.

• Market breadth weakened, with decliners outnumbering advancers by roughly 1.2 to 1 on both the NYSE and Nasdaq.

Investor Takeaway

• AI cost pressures are starting to test investor conviction in megacap tech.

• The Fed’s December decision and AI spending trajectories will likely determine short-term sentiment.

• Despite pullbacks, the AI investment theme remains the core driver of US equity valuations heading into 2026.