By Johann M Cherian and Ragini Mathur
July 28 (Reuters) - Nasdaq futures fell on Tuesday, mirroring a cautious mood across global markets toward AI chip stocks on concerns about hefty corporate spending and rising Chinese competition, ahead of earnings from some of the biggest companies on Wall Street.
Chip bellwethers such as Nvidia fell 1%, Micron slid 5.5% and Applied Materials lost 4.3% in premarket trading, while U.S.-listed shares of Taiwan's TSMC and Korea's SK Hynix fell 3.4% and 4.8%, respectively.
Global markets have become increasingly volatile this month as investors have scrutinized the need for more corporate spending on AI infrastructure such as semiconductors that underpinned strong gains in chip stocks in the previous quarter.
Roundhill's Memory Exchange Traded Fund lost 7.4% on Tuesday and has been trading below its 50-day moving average for the past two weeks, reflecting weak short-term momentum, while the Philadelphia SE Semiconductor Index has fallen over 20% from its all-time high hit in June.
Signs that Wall Street's biggest companies such as Alphabet and Tesla are running out of cash to fund their ambitions have also made markets nervous, while China showcases cheaper AI models and deepens its presence in the competitive semiconductor industry.
"Should Microsoft, Amazon or Meta also announce a similar dive in their free cash flow levels, that will also reignite the worries that these companies will continue to spend, but the extra spending will have to be on stock and bond issuance," Ipek Ozkardeskaya, a senior analyst at Swissquote, said.
When AI hyperscalers Amazon.com, Meta, Apple and Microsoft report earnings later this week, investors will be keen to see if their investments, worth over several hundred billion dollars, are yielding returns. The reports are also expected to offer clues on the demand for chips and other AI infrastructure.
Shares of the four U.S. companies were marginally higher on Tuesday.
At 7:04 a.m. ET, Dow E-minis were up 262 points, or 0.5%, and S&P 500 E-minis were down 9.75 points, or 0.13%. Nasdaq 100 E-minis were down 293.5 points, or 1.04%.
The Federal Reserve is due to announce its interest-rate decision on Wednesday. Traders see a 35.8% chance of a rate hike this week, according to LSEG data, and expect borrowing costs to rise by at least 25 basis points by year-end.
Higher rates could further pressure AI companies that are becoming more dependent on debt financing.
Oil prices offered some relief, falling 2.5% to a one-week low as a fragile U.S.-Iran ceasefire appeared to hold despite reports of drone attacks in Saudi Arabia, Jordan and Iraq. President Donald Trump said the U.S. was having "good talks"with Iran and that a deal to end the conflict was possible.
Later on Tuesday, the Conference Board's July consumer confidence report could provide a clearer picture of how the conflict is affecting household sentiment.
Among others, Johnson & Johnson rose 2.3% after saying it would pay an estimated $5.5 billion to resolve tens of thousands of lawsuits alleging its talc products caused cancer.
Coca-Cola gained 2.6%, as the beverage company raised its annual revenue and profit forecasts.
(Reporting by Johann M Cherian, Ragini Mathur and Utkarsh Tushar Hathi in Bengaluru; Editing by Shinjini Ganguli and Maju Samuel)
