Key Highlights

  • Alphabet (NASDAQ:GOOGL) shares fell roughly 10% in premarket trading after Q3 Revenue of about $127.6 billion missed the roughly $128.2 billion analysts expected, with search and Advertising growth slowing to 12% for a second straight quarter.
  • The company posted negative free Cash Flow of about $9.1 billion while holding full year Capital spending guidance at $195 billion to $205 billion, intensifying investor worries about returns on heavy AI infrastructure spending.
  • The Federal Reserve held its benchmark rate steady at 3.75% to 4% on October 28 in a 10 to 2 vote, a decision markets had already priced in and that was not the catalyst for today's tech weakness.
  • September PCE Inflation data released today came in line with forecasts, at 3.6% year over year headline and 3.1% core, making it a non event relative to Alphabet's results.

What Happened in Markets Today

US stock futures turned lower on Thursday, led by a sharp decline in Nasdaq 100 futures, after Alphabet's third quarter results disappointed investors a day after the Federal Reserve's policy meeting. Nasdaq 100 futures were down around 1%, while S&P 500 futures slipped about 0.3%. Dow futures held up better, trading mixed to slightly positive, since the blue chip index carries less exposure to the AI and search advertising names at the center of the selloff.

The move stands in contrast to Wednesday's session, when the S&P 500 and Nasdaq each closed up about 0.3% and the Dow added around 0.2% after the Fed's widely expected decision to hold rates. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of a 25 basis point hike, and the Fed's statement described inflation as remaining elevated while characterizing economic activity as expanding at a strong pace. Markets still assign roughly an 84% probability to a rate cut or hike debate resolving with a move in December, keeping the policy outlook largely unchanged from before the meeting.

Why Alphabet's Results Are the Real Catalyst

The Earnings miss from Alphabet is doing the heavy lifting behind today's tech pullback. Revenue of about $127.6 billion came in below consensus estimates near $128.2 billion, and earnings also missed expectations. More concerning to investors was the slowdown in search and advertising growth to 12%, the second consecutive quarter of deceleration, which has raised questions about whether AI powered search features are starting to cannibalize Alphabet's core high Margin advertising business.

Compounding the concern, Alphabet reported negative free cash flow of roughly $9.1 billion for the quarter, driven by aggressive spending on AI and cloud infrastructure, even as it maintained full year Capital Expenditure guidance of $195 billion to $205 billion. That combination of slowing core growth and heavy ongoing AI spending commitments has reignited a broader debate across the market about when, or whether, AI infrastructure Investment will translate into proportional returns.

Microsoft (NASDAQ:MSFT) reported stronger results in the same window, with solid Azure cloud growth and comparatively healthier free cash flow, and its shares rose in premarket trading. Even so, the drag from Alphabet weighed on Nasdaq futures broadly and pulled down other AI linked names, underscoring how concentrated investor sentiment has become around a small group of mega cap technology stocks.

Did Inflation Data Play a Role?

Not materially. September's Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, rose 0.5% month over month and 3.6% year over year on a headline basis, both in line with expectations. Core PCE increased 0.3% month over month and 3.1% year over year, also matching forecasts. Third quarter GDP growth came in stronger than expected at 3.4% versus a roughly 3.2% forecast.

While inflation remains well above the Fed's 2% target and supports a higher for longer rate stance, the data did not represent a negative surprise. Futures were already under pressure from Alphabet's results before the PCE and GDP figures were released, and the data release caused futures to pare losses only slightly rather than reverse the broader move. Separately, softer oil prices tied to hopes of Middle East de-escalation added a modest offsetting Factor elsewhere in the market.

Bottom Line

Today's tech weighted selloff traces back to Alphabet's earnings miss and renewed scrutiny of AI capital spending, not to the Fed's rate decision or the inflation data. The Fed's hold was already priced in, and September PCE inflation matched expectations, leaving Alphabet's slowing ad growth and negative free cash flow as the dominant story driving Nasdaq futures lower on Thursday.