US Stocks Rebound After Alphabet and AMD Disappoint
US stocks initially fell on Wednesday after disappointing earnings reports from Alphabet (GOOG) and AMD (AMD). However, the market recovered to close higher as the tech-heavy Nasdaq Composite (^IXIC) gained 0.2% and the benchmark S&P 500 (^GSPC) added 0.4%. The Dow Jones Industrial Average (^DJI) rose 0.7%.
Alphabet's Cloud Revenue Falls Short
Alphabet's stock dropped nearly 7% after its fourth-quarter cloud revenue missed estimates. This has raised concerns among investors that Google's parent company may not see a significant return on its heavy spending in AI.
Nvidia Benefits from AI Spending
Despite Alphabet's miss, Nvidia (NVDA) gained over 5%. The chipmaker has emerged as a potential beneficiary of increased AI spending by Big Tech companies.
10-Year Treasury Yield Falls
The 10-year Treasury yield (^TNX) declined nine basis points to hit 4.42%, its lowest level since December 2024. This has benefited interest rate-sensitive sectors such as real estate and utilities, which gained on Wednesday.
AMD's AI Forecast Raises Concerns
AMD's earnings provided a mixed picture. While the company reported a revenue beat, a disappointing forecast for data center sales raised concerns about a potential slowdown in AI momentum. AMD shares fell over 6%.
China-US Tariff Tensions Continue
Big Tech names like Alphabet are also being impacted by the ongoing tariff dispute between the US and China. Apple (AAPL) shares dropped about 2% before recovering after a Bloomberg report suggested Beijing may investigate its app store.
Fed Officials Remain Cautious
Federal Reserve officials have indicated that they will not rush into any policy changes amid the tariff turmoil created by President Donald Trump. They emphasized the need to wait and see how the situation develops before taking any action.
Big Tech Spending Boom Continues
Meta (META), Microsoft (MSFT), and Alphabet are expecting to spend a cumulative $230 billion in 2025 on artificial intelligence infrastructure. While tech giants argue that this investment will pay off long-term, investors remain skeptical.
Trump's Tariffs Could Impact Housing Affordability
Proposed tariffs by President Trump could make it more expensive to buy a home. Builders may pass on increased construction costs to buyers, further straining affordability concerns.
Activity in Services Sector Slows
According to the Institute of Supply Management, activity in the US services sector expanded in January but at a slower pace than in previous months. This suggests a potential loss of momentum, which may be influenced by apprehension around tariffs.
Alphabet's Capital Expenditure Increases
Alphabet plans to increase its capital expenditure to $75 billion in 2025, exceeding Wall Street estimates. This investment underscores the company's commitment to AI and data center spending, despite ongoing debate about its profitability.