Nasdaq Composite Slips as Alphabet Earnings Spark Artificial Intelligence Jitters

US stocks fell on Thursday, dragged lower by a tech-heavy sell-off after Alphabet reported quarterly results that heightened investor anxieties over massive artificial intelligence expenditures. The tech-heavy Nasdaq Composite experienced a significant decline, falling between 1.4% and 1.77% depending on the exact index close, while the S&P 500 and the Dow Jones Industrial Average also posted losses. The downturn snapped a positive streak for tech equities as markets digested corporate reports and the Federal Reserve's recent policy decisions.

Alphabet shares plunged roughly 12% to 13%, marking their worst single-session decline since the company's initial public offering over two decades ago. The Google parent company reported third-quarter revenue that fell short of Wall Street expectations and revealed a negative free cash flow of $9.07 billion as capital expenditures accelerated. The sharp decline wiped out hundreds of billions in market value and triggered a broader wave of selling across artificial intelligence and semiconductor stocks.

The market unease spread quickly across the technology sector, impacting major industry players. Software companies and semiconductor indexes tumbled, with firms like Fortinet and ServiceNow suffering double-digit losses following their respective earnings reports. In contrast, Microsoft offered a steady contrast by beating analyst expectations on top and bottom lines, driven by strong cloud growth in its Azure infrastructure business, though its stock faced some pressure amid reports of a planned bond sale.

Beyond technology, industrial giant Caterpillar saw its stock slide by roughly 9% to 12% after its sales forecasts failed to impress investors, weighing on blue-chip components. Meanwhile, strong corporate performances in other sectors provided some counterbalance. Eli Lilly shares jumped over 6% following robust third-quarter results for its GLP-1 weight-loss and diabetes medications, and DoorDash announced a $17 billion acquisition of grocery delivery provider Instacart.

The equity market pullback unfolded against a backdrop of resilient economic growth and persistent inflation data. A preliminary report showed that the US economy grew at an annualized rate of 3.4% in the third quarter, surpassing economist forecasts. However, the Personal Consumption Expenditures price index indicated that annual inflation rose to 3.6% in September, reinforcing expectations that the Federal Reserve may consider further monetary tightening.

The Federal Reserve decided to hold benchmark interest rates steady in a range between 3.75% and 4% earlier in the week, though the decision featured two dissenting votes favoring a rate hike. Following the latest economic releases, traders began pricing in a higher likelihood that the central bank might implement a rate increase at its upcoming December meeting. Meanwhile, Treasury yields eased slightly as oil prices retreated amid developments in international diplomacy.

As investors rotated away from technology and communication services toward defensive sectors like healthcare and consumer staples, market analysts noted a growing demand for tangible returns on AI investments. Ross Mayfield, an investment strategy analyst at Baird, observed that a risk-off session where small-cap stocks outperform indicates that cracks in the AI narrative do not signal broader economic failure. Market participants will continue to monitor upcoming hyperscaler earnings and economic indicators to gauge the trajectory of growth and inflation.