Central Banks Hold Rates as AI Bets Crack

Nasdaq 100 futures fell 1.1% to 1.2% on Thursday after disappointing results from Alphabet and Samsung Electronics rattled a global technology-share rally built around enormous investments in artificial intelligence. The numbers on trading screens shifted; the question underneath them didn’t: whether companies can turn those vast outlays into profits investors will accept.

The price of the AI promise

Alphabet fell 10% in extended trading after sales disappointed, renewing concerns that Google was losing ground to AI rivals despite investing hundreds of billions of dollars in the technology. Samsung Electronics dropped 4.1%. Investors were disappointed by the absence of a new shareholder-return plan, chip-operation profit missed estimates, and capital spending increased.

“Expectations were already extremely high, so in a sense, simply meeting expectations isn't good enough,” said Wataru Akiyama, a strategist at Nomura Securities. “Unless companies can demonstrate earnings growth that exceeds those already-high expectations, their shares can fall when they report results.” In this market, spending at a scale measured in hundreds of billions still has to answer to the demand for returns.

The scrutiny ran in both directions. Microsoft rose 2.9% in after-hours trading on solid cloud sales, while Oracle surged 11% after giving a long-term free-cash-flow outlook. A gauge of Oracle’s credit risk improved the most in nearly nine months. Hugh Lam, a Sydney-based investment strategist at Betashares Capital Ltd., said the divergence between Alphabet and Microsoft highlighted growing scrutiny of how big tech companies were funding their data-center build-outs.

Amazon results due Thursday and Apple results due the following week were expected to test sentiment. STMicroelectronics forecast fourth-quarter revenue growth as chip demand recovered after a prolonged slump. Meanwhile, S&P 500 futures fell 0.3% to 0.4%; the Stoxx Europe 600 was little changed, and Asian shares fell, with the Kospi down 1.2% after its biggest gain in three months on Wednesday.

Central banks set the terms

The Federal Reserve voted 10-2 to hold rates steady on Wednesday. Shorter-maturity Treasuries gained for a second day, with the two-year yield reported at 4.67% to 4.68% and the 10-year yield at 4.99% to 5%. The European Central Bank decision was due Thursday and the Bank of Japan decision Friday; both were expected to leave rates unchanged.

“No change in policy is expected by the ECB, though it may look to calm fears about Eurozone sovereign debt risks by stressing it has the tools to ward off systemic threats to the economy,” Peter Dragicevich, currency strategist for APAC at CorPay, wrote in a note. The Fed’s preferred inflation gauge, US core personal consumption expenditures data, was also due Thursday. Decisions made by central banks set the conditions markets price in, while the next figures on prices were still awaited.

Eugene Leow, a strategist at DBS Bank Ltd. in Singapore, said the market was catching hints of caution from Fed Chair Warsh, potentially related to perceived excessive AI optimism. “Safety and the potential of slowing activity in the AI segment is weighing on yields.” Bloomberg strategist Mark Cranfield described investors moving toward Treasuries as equities slid, with lower yields nudging the dollar down; he said that pattern could matter heading into next week’s US midterms.

The corporate bill

Elsewhere, ING Groep reported third-quarter profit below estimates after costs rose and it set aside more for souring loans. The Dutch lender said it would cut about 400 staff to refocus its wholesale banking business. Volkswagen swung to a loss after further writedowns amid a deteriorating environment led by declines in China. Renault confirmed its financial outlook for the year amid a challenging environment for European automakers.

Brent crude fell 0.4% to $114.82 a barrel in one update and 1.2% to $114 in another, as traders weighed diplomatic efforts in the Middle East to avert a possible resumption of US military strikes on Iran. The market report also recorded gold and Bitcoin falling, while Treasuries drew buyers. Capital can change its refuge quickly. Workers facing a corporate cut don’t get the same luxury.