Alphabet Sell-Off Drags Nasdaq Lower as AI Concerns Return

U.S. stocks declined Thursday, October 29, as Alphabet's third-quarter results renewed concerns about artificial intelligence spending and profitability, putting pressure on major technology companies. According to Yahoo Finance and Barron's, the Nasdaq Composite fell 1.2%, the S&P 500 slipped 0.3%, and the Dow Jones Industrial Average lost 0.4% as investors assessed corporate earnings and the Federal Reserve's latest interest rate decision.

Technology shares led the downturn even as many individual stocks advanced. Barron's reported that 382 S&P 500 components traded higher while the index fell 0.3%, and the equal-weight S&P 500 gained 0.8%. The figures highlighted the influence of large technology companies on market-capitalization-weighted indexes.

Alphabet shares fell sharply after the Google parent missed expectations for adjusted earnings per share and revenue. CNBC reported that the company recorded negative free cash flow of $9.07 billion and maintained its full-year capital expenditure forecast at $195 billion to $205 billion. Yahoo Finance noted that Google Cloud growth reached 103%, but concerns about cash generation and returns on AI investment weighed on the results.

The pressure extended across the technology sector. CNBC reported that the iShares Semiconductor ETF fell nearly 2%, while the Roundhill Memory ETF declined more than 3%. Software shares also weakened, with Fortinet and ServiceNow suffering double-digit losses following their earnings reports, according to Yahoo Finance.

Microsoft also faced selling pressure despite reporting fiscal first-quarter results that exceeded analysts' expectations for revenue and earnings. CNBC reported that shares reversed an initial gain and were last down more than 1%. Lower-than-expected capital expenditure figures raised concerns about the pace at which infrastructure partners could deliver data center capacity, contributing to declines in cloud infrastructure companies CoreWeave and Nebius.

Art Hogan, chief market strategist at B. Riley Wealth Management, said investors were becoming more selective about technology companies as earnings reports exposed differences in individual businesses.

"I think we're in a better, more stable place in October and heading into November in the tech trade than we were in August and September. But that said, I think investors are becoming much more selective," said Art Hogan, chief market strategist at B. Riley Wealth Management.

Hogan also emphasized the potential for company-specific announcements to move share prices even when broader sentiment toward technology is relatively stable.

"I think we're in an environment where there's less concern and negativity over tech writ large, but I think specifically, you can certainly get announcements from individual players that will move the needle." said Art Hogan, chief market strategist at B. Riley Wealth Management.

The Federal Reserve kept its benchmark interest rate unchanged at 3.75% to 4% on Wednesday. CNBC reported that two policymakers dissented in favor of a rate increase, while officials described inflation as elevated and said they needed more information before making further policy decisions.

Inflation data added to the market's concerns. The personal consumption expenditures price index, the Fed's preferred inflation measure, rose 0.5% in September, according to CNBC. The annual rate reached 3.6%, reflecting persistent price pressures despite the central bank's decision to hold rates steady.

Economic growth remained stronger than expected. CNBC reported that U.S. gross domestic product expanded at a 3.4% rate in the third quarter, exceeding the consensus forecast of 3.1%. The combination of economic growth and persistent inflation complicated the outlook for monetary policy.

Outside technology, health care shares advanced following strong pharmaceutical earnings. CNBC reported that Eli Lilly generated $24.4 billion in third-quarter revenue, exceeding analysts' expectations, and raised its 2026 revenue forecast to between $91 billion and $92 billion from its previous range of $85 billion to $87 billion. Earnings reached $7.22 per share, compared with $6.21 a year earlier.

David A. Ricks, Eli Lilly's chair and CEO, attributed the company's performance to demand for its obesity and diabetes treatments and growth across other product categories.

"Lilly had another strong quarter, exceeding our prior expectations and allowing us to raise our full-year outlook," said David A. Ricks, chair and CEO of Eli Lilly.

Ricks said revenue growth reflected global demand for Mounjaro and Zepbound, the launch of Foundayo, expanded U.S. coverage for obesity care, and increased sales of newer products in oncology, immunology and neuroscience.

Industrial stocks faced a different earnings reaction. Caterpillar shares dropped as much as 12% in Thursday trading after the company projected weaker-than-expected sales growth, according to Yahoo Finance. CNBC reported that its third-quarter revenue and earnings exceeded expectations, although construction-industry sales came in slightly below estimates.

Other individual stocks also moved on company-specific developments. Yahoo Finance reported that grocery chain Sprouts fell 20% after disclosing a price-cutting strategy expected to weigh on profits into next year. Investors were also awaiting Amazon's quarterly earnings after Thursday's market close, with the results expected to provide another indication of spending and growth among major cloud computing companies.

In Europe, European Central Bank President Christine Lagarde announced Thursday that she would leave her position on February 7, 2027, ahead of schedule, according to Yahoo Finance. Her departure comes as the region faces persistent inflation, rising bond yields and political tensions in France over budget deficits and proposed austerity measures.