Key Highlights

● Microsoft slipped Friday as a broad Big Tech selloff weighed on Dow tech members.

● No company-specific negative news was cited; the software and cloud giant moved with its sector.

● Investors shifted from what AI can do to how its build-out will be financed.

● Meta reports Oct 21, the Fed decides Oct 28, and PCE and GDP follow.

Moving with the pack

Microsoft (NASDAQ:MSFT) slipped on Friday, trading at $529.05 at midday, according to market data, as a broad selloff in large technology companies weighed on the Dow Jones Industrial Average's tech members. No company-specific negative news was cited for the move; the software and cloud giant moved with its sector.

The Dow slipped 175.28 points to 52,002.41, cushioned by gains in energy, financials and consumer staples. The tech-heavy Nasdaq Composite fell far more sharply, sinking 572.99 points to 26,140.03, and the S&P 500 dropped 84.62 points to 7,659.44. All but seven of the 75 technology stocks in the S&P 500 closed lower, according to market reports.

A question of financing

The day's dominant theme, according to market commentary, was a shift in how investors view artificial intelligence: from what the technology can do to how its infrastructure will be paid for. Companies relying heavily on debt to build data centers were hit hardest, but the selling spread across Big Tech, including Alphabet (NASDAQ:GOOGL), Meta Platforms (NASDAQ:META) and Amazon (NASDAQ:AMZN).

Concerns about the cash-flow effect of borrowing for data centers were cited as a factor in Alphabet's decline, while data-center credit pressure was pointed to as a weight on Meta. A published report said the rotation erased more than $1 trillion from semiconductor and AI-related stocks over the week.

Microsoft is one of the largest spenders on AI infrastructure through its Azure cloud platform, which rents computing power to businesses and AI developers. That role puts it squarely in the middle of the debate about the scale and payback of AI investment.

Software under pressure

Software stocks were also hit hard. Market data showed that 41 of the 45 stocks in a software basket fell, erasing roughly $130 billion in market value. Salesforce (NYSE:CRM), another Dow member, fell, as did ServiceNow (NYSE:NOW) and Atlassian (NASDAQ:TEAM). One analyst said that "upcoming Big Tech earnings will still need to demonstrate that the enormous investment in AI is translating."

An energy deal on the side

Separately, utility NiSource (NYSE:NI) announced a long-term energy agreement with Microsoft, tied to a campus in northwest Indiana. NIPSCO customers are expected to see about $1.75 billion in savings, according to market reports. Agreements like this reflect how large technology companies are lining up power supplies for data centers.

Rates and the Fed

Treasury yields eased over the week, with the 10-year finishing near 5.1, after topping 5.3 earlier in October, the highest since 2002, per market data. Fed Chair Kevin Warsh, speaking at an IMF gathering in Bangkok, said, "I don't prejudge meetings," declining to preview the October decision. The Fed raised rates by a quarter point in September, its first hike in three years.

The Cboe Volatility Index rose 3.53 points to 19.99, after touching 22.31 intraday, its highest since June 11.

Microsoft Faces a Big Tech Earnings Run

Big Tech earnings start next week. The Federal Reserve's rate decision on October 28 could influence borrowing costs that sit at the center of the AI financing debate, and the PCE inflation report and first third-quarter GDP estimate follow on October 29. Meta Platforms reports on October 21, along with Tesla (NASDAQ:TSLA), Lam Research (NASDAQ:LRCX), Texas Instruments (NASDAQ:TXN) and IBM (NYSE:IBM), and investors will listen closely for spending plans and returns on AI investment.