(Reuters) – Nasdaq futures experienced a notable decline on Wednesday following quarterly earnings reports from Tesla and Alphabet, which heightened investor concerns about the dominance of Big Tech stocks that have propelled Wall Street to record highs.
Tesla saw a significant drop of 6.9% in premarket trading after it reported its lowest profit margin in over five years and fell short of second-quarter earnings expectations. This was attributed to price cuts aimed at reviving demand and increased spending on artificial intelligence projects.
Alphabet, the parent company of Google, also declined by 2.8% after indicating that capital expenditures would remain elevated for the year, even though it surpassed second-quarter earnings expectations.
“The initial reaction to Big Tech earnings was less than encouraging,” stated Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Two of the ‘Magnificent 7’ stocks failed to generate excitement with their Q2 results. This subpar earnings performance comes at a time when investors are questioning whether the AI-driven rally has advanced too rapidly.”
Most of the so-called Magnificent Seven, a group of megacap tech stocks, have achieved double- to triple-digit percentage gains thus far in 2024, driven by optimism surrounding AI and an early onset of Federal Reserve rate cuts.
This elite group, excluding Tesla, has propelled the benchmark S&P 500 and the tech-heavy Nasdaq to record highs this year. However, market participants have grown cautious about the valuations of these companies and have started investing in other underperforming sectors.
As investors scrutinize the ongoing earnings season for insights into the health of corporate America amid decades-high interest rates, the results from these tech giants will be crucial in determining if Wall Street’s rally has further momentum.
Other megacaps, including Apple, Microsoft, Amazon.com, Meta Platforms, and Nvidia, saw declines ranging from 0.5% to 2%.
Later today, investors will scrutinize economic data, including S&P Global’s flash PMI, while Friday’s release of the personal consumption expenditures (PCE) price index will significantly influence the direction of U.S. monetary policy.
According to CME’s FedWatch Tool, traders have factored in a nearly 92% probability of a 25 basis points interest rate cut by the Federal Reserve by its September meeting.
As of 4:57 a.m. ET, Dow e-minis were down 177 points, or 0.44%, S&P 500 e-minis had declined by 36.75 points, or 0.66%, and Nasdaq 100 e-minis were down 182.25 points, or 0.91%.
In earnings news, Enphase Energy saw a 6.9% increase in its stock after surpassing second-quarter operating profit estimates. Texas Instruments’ stock rose 2.5% following a second-quarter profit beat, while Visa’s stock fell 3% due to third-quarter revenue growth missing expectations—a rare occurrence for the world’s largest payments processor.
(Reported by Ankika Biswas in Bengaluru;)