Dow slips 0.25%, S&P 500 loses 0.30%, and Philadelphia Semiconductor Index falls 1.42%.
Alphabet tumbles 12.64%; Russell 2000 gains 1% amid strength in financials and healthcare sectors.
Wall Street's major stock indexes closed lower on Tuesday, as Alphabet's quarterly report brought mounting cash-flow pressures from artificial intelligence investments into sharp focus, triggering a sell-off in mega-cap technology stocks. Nevertheless, divergent sector trends emerged as financial and healthcare equities generally advanced, alongside strength in small-cap issues.
The Dow Jones Industrial Average fell 132.54 points, or 0.25%, to close at 52,342.56. The S&P 500 declined 23.59 points, or 0.30%, to 7,720.39, while the tech-heavy Nasdaq Composite dropped 365.13 points, or 1.38%, to finish at 26,184.72. The Philadelphia Semiconductor Index also retreated 165.80 points, or 1.42%, ending at 11,518.20.
At the center of the downturn was Google parent Alphabet, whose Class A shares plunged 12.64%. The company reported third-quarter revenue of $127.57 billion—a 25% increase year-over-year—falling short of the roughly $128.2 billion consensus estimate compiled by LSEG. While Google Cloud revenue surged 103%, growth in its core search business slowed to 12%.
Capital expenditures outpaced cash generated from operations. Alphabet’s third-quarter capital expenditures reached approximately $51.4 billion, surpassing its operating cash flow of roughly $42.3 billion. Consequently, free cash flow slid to a deficit of about $9.1 billion, marking the second consecutive quarter of negative free cash flow.
Software companies suffered steep declines amid disappointment over forward-looking growth forecasts. ServiceNow plummeted 26.95% and Fortinet tumbled 20.09%. ServiceNow’s guidance for remaining performance obligations—revenue under contract expected to be recognized over the next 12 months—missed market expectations, while Fortinet lowered its annual service revenue forecast. Salesforce and Palo Alto Networks also lost 4.63% and 3.53%, respectively.
Major semiconductor stocks traded lower in tandem. NVIDIA fell 0.80%, Broadcom dropped 1.94%, AMD lost 2.08%, and Micron Technology declined 4.98%. Marvell Technology slumped 13.24% following reports that it is in advanced talks to acquire data-center optical components maker Lumentum. Conversely, semiconductor equipment makers KLA and Applied Materials rose 5.45% and 1.36%, respectively.
Caterpillar, which has benefited from surging demand for power generation equipment driven by AI data center expansion, dropped 9.25%. Although its third-quarter revenue and adjusted earnings per share topped market expectations, the company maintained its annual revenue growth guidance, failing to satisfy elevated investor expectations.
Major healthcare stocks posted strong gains. Eli Lilly climbed 6.63% after raising its full-year revenue outlook, bolstered by strong sales of its diabetes and weight-loss treatments, Mounjaro and Zepbound. The pharmaceutical giant projected annual revenue between $91 billion and $92 billion, up from its previous range of $85 billion to $87 billion. Merck advanced 3.83%, and Gilead Sciences gained 4.03% in regular trading ahead of its earnings report due after the closing bell.
Financial and consumer-related equities also trended upward. JPMorgan Chase rose 1.26%, Visa gained 2.48%, and Mastercard advanced 4.16%. Walmart and Home Depot added 2.09% and 3.60%, respectively.
Among mega-cap tech peers, Apple and Meta bucked Alphabet’s downward trend, rising 1.48% and 1.96%, respectively. Because gains were broadly distributed across various sectors, the slide in major indices did not translate into a market-wide rout. The small-cap Russell 2000 Index finished up 1.01% at 2,859.22, with advancing issues outnumbering decliners within the S&P 500.
Economic data released alongside corporate earnings pointed to simultaneous economic expansion and mounting inflation pressures. According to the U.S. Department of Commerce's Bureau of Economic Analysis (BEA), advance estimates showed real gross domestic product (GDP) grew at an annualized rate of 3.4% in the third quarter, accelerating from the 2.2% growth rate recorded in the second quarter, propelled by stronger investment growth and a rebound in government spending.
However, September consumer data highlighted growing strains on household purchasing power. The Personal Consumption Expenditures (PCE) price index rose 3.6% year-over-year and 0.5% from the previous month. Core PCE inflation, which excludes food and energy, increased 3.1% and 0.3%, respectively. Although nominal consumer spending grew 0.5% month-over-month, real spending adjusted for inflation remained virtually flat, while real disposable income declined 0.3%.
A slew of major corporate earnings reports followed after the market close. Amazon, which fell 4.25% in regular trading, extended its losses in after-hours trading following its earnings release. Although AWS revenue climbed 39% year-over-year, the midpoint of the company's fourth-quarter revenue guidance—ranging from $240 billion to $247 billion—fell short of market forecasts. Concerns over heavy cash outflows driven by massive capital expenditures also weighed on the stock.
Intel similarly extended its regular-session losses of 3.62% in extended trading following its earnings report. Weighed down by a disappointing fourth-quarter revenue outlook, sluggish PC demand, and production disruptions stemming from an explosion at an Israeli facility, Reuters reported that Intel shares plunged roughly 18% in after-hours trading.
