By Stephen Culp and Tharuniyaa Lakshmi
Oct 22 (Reuters) - US stocks tumbled on Thursday and the Nasdaq posted its steepest daily drop since June as a batch of high-profile earnings reports ignited fresh fears about the AI spending race.
The S&P 500 ended deep in negative territory. The tech-laden Nasdaq, dragged down by microchips, fell the most in the wake of a spate of high-profile AI-related earnings results.
Meta Platforms' results beat analyst expectations, but its stock tumbled after the Facebook
parent posted its first cash outflow in more than a decade due to its AI-related expenditures and announced plans to issue non-voting shares in a two-for-one split to raise capital to spend on the nascent technology.
Tesla shares fell even though the electric car maker unexpectedly posted positive free cash flow in the quarter and cut its 2026 capital spending plans.
The Philadelphia SE Semiconductor Index, which has driven much of the current bull market's gains, plunged.
With Thursday's decline, the SOX has lost about one-fourth its value since its record closing high reached on June 22, yet it remains sharply higher for the year, well outperforming the S&P 500's year-to-date gain.
"It's a wonderful day on Wall Street," said Paul Nolte, senior wealth adviser & market strategist at Murphy & Sylvest in Elmhurst, Illinois. "The only part of the market that is really suffering here is technology, which has been the golden child of the markets up until about June."
"Investors are starting to realize that there are some holes in the AI story," Nolte added. "And that's having an impact on the indices because they're so heavily weighted toward technology."
On the geopolitical stage, Iran-backed Houthis launched new strikes against Saudi targets, sending crude prices to a five-month high. Investors worried that ongoing Middle East strife could keep inflation hot and force the US Federal Reserve to keep raising interest rates.
Data from the Labor Department showed initial claims for unemployment benefits kept drifting along near multi-decade lows. Signs of labor market stability will allow the Fed to focus on fighting inflation. Financial markets are currently pricing in the probability that the central bank will raise its policy rate by another 25 basis points before year-end.
According to preliminary data, the S&P 500 lost 92.40 points, or 1.19%, to end at 7,664.77 points, while the Nasdaq Composite lost 690.28 points, or 2.58%, to 26,008.86. The Dow Jones Industrial Average rose 17.51 points, or 0.03%, to 52,873.60.
Third-quarter earnings season is well underway, with 111 of the companies in the S&P 500 having reported. Of those, 83% have beaten analyst expectations, according to the most recent LSEG data.
Procter & Gamble warned that rising cost pressures would take an increasing bite out of profit, but beat analyst estimates, sending the stock sharply higher and supporting consumer staples.
Blackstone advanced after the company said widening credit spreads on AI-related debt could present an opportunity to lock in higher returns.
Lockheed Martin climbed after the aerospace/defense firm raised its annual sales and profit forecast.
Spotify jumped after the Swedish music streaming firm forecast fourth-quarter profit above Wall Street estimates, betting on its AI-powered features to drive user growth.
Union Pacific rose following the company's quarterly earnings beat, which was helped by core pricing gains, although the railroad flagged a hit from rising fuel prices.
Chipmakers Western Digital, Intel, ADM, Sandisk, and Marvell all posted steep percentage losses amid the broader semiconductor selloff.
(Reporting by Stephen Culp; Additional reporting by Tharuniyaa Lakshmi and Ragini Mathur in Bengaluru; Editing by David Gregorio)
