Stocks Fall Ahead of Alphabet as Brent Hits $95: Markets Wrap
(Bloomberg) — US stocks fell ahead of Alphabet Inc.’s earnings as traders waited for the clearest read yet on whether hyperscalers’ vast spending on artificial intelligence will eventually pay off. Brent briefly topped $95 a barrel.
A two-day rebound in the Nasdaq 100 came to a halt, with index futures dropping 0.6%. South Korea’s Kospi Index and other tech-heavy gauges in Asia trimmed strong early-session gains. The technology sector lagged sharply in Europe’s Stoxx 600. S&P 500 contracts were down 0.2%.
Higher oil prices also kept a lid on sentiment after both the US and Iran signaled they were in no mood to restart talks following an escalation in their conflict. Brent traded at $94.50 a barrel, extending its surge in July to 29%.
After Alphabet said last quarter that it plans to more than double capital spending from 2025 to as much as $190 billion this year, investors will be looking for evidence that those investments are generating returns. Yet the companies building global AI infrastructure need that spending growth to continue to justify their stellar valuations.
The earnings report will land just as market-leading chipmakers are gripped by intense volatility amid fears that the pace of AI outlays cannot be sustained.
“Alphabet isn’t just reporting earnings, it’s reporting on the health of the entire AI investment cycle,” said Amanda Lyons at Energy Group Capital. “If management sounds any less committed to AI investment, the market won’t just punish Google, it will question the durability of the AI buildout more broadly.”
Even so, capex alone isn’t enough as “investors increasingly want proof that the spending is generating returns,” she said.
In Wednesday’s second major earnings event, investors will want to see Tesla Inc. doing more to deliver AI-driven progress. Unlike most other tech giants, an uptick in capital spending and a higher outlook for AI outlays would likely give the shares a boost. The stock is down 16% so far this year.
International Business Machines Corp. and Texas Instruments Inc. are also due to report after the close. Super Micro Computer Inc. shares jumped in premarket trading on strong demand for its servers. Pegasystems Inc. plummeted after the software firm missed earnings estimates.
Treasury yields held near two-month highs as higher oil prices kept inflation fears elevated. Gilts outperformed European bonds on a softer-than-expected UK inflation print. The dollar and pound were little changed.
What Bloomberg Strategists Say
“The oil market has returned to concern over the Iran-US conflict with open interest surging to a record high. This is clearly a headline-driven market, but if negotiations continue on their current path, options traders are signalling that the risk is greater that Brent prices rise than fall.”
— Skylar Montgomery Koning, macro strategist. Click here for the analysis.
The yen edged higher after people familiar said Bank of Japan officials are open to raising interest rates at a faster pace than economists anticipate, with the currency’s continued weakness adding to upside inflation risks.
High expectations for returns driven by AI spending and elevated market concentration mean investors should prepare for volatility, said Tim Love, head of global emerging-market equities at Rathbones Asset Management.
“The market will focus very heavily on the return on capital invested and the time frame of the monetization,” Love said. “It’s inevitable you get a lot more volatility as people demand higher transparency in a shorter period of time.”
Corporate News:
AT&T Inc. added more monthly wireless phone subscribers than analysts expected in the second quarter, a bright spot for the carrier in a period that had investors spooked by potential competitive threats. Super Micro Computer Inc. shares rose as much as 19% in premarket trading after the server maker issued preliminary results saying its backlog hit a record on new orders in the quarter of more than $60 billion. Cathay Pacific Airways Ltd. expects a jump in first-half net income, driven by strong passenger and cargo demand. Banco Santander SA posted second-quarter net income that beat analyst estimates as it continued to add millions of customers. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.2% as of 7:05 a.m. New York time Nasdaq 100 futures fell 0.6% Futures on the Dow Jones Industrial Average were little changed The Stoxx Europe 600 rose 0.4% The MSCI World Index rose 0.1% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1403 The British pound was little changed at $1.3371 The Japanese yen was little changed at 163.01 per dollar Cryptocurrencies
Bitcoin fell 0.6% to $66,016.32 Ether rose 0.4% to $1,929.68 Bonds
The yield on 10-year Treasuries was little changed at 4.63% Germany’s 10-year yield advanced two basis points to 3.18% Britain’s 10-year yield advanced one basis point to 5.04% Commodities
West Texas Intermediate crude rose 3.5% to $87.33 a barrel Spot gold rose 1% to $4,117.57 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Neil Campling, Cecile Gutscher, Subrat Patnaik and Sagarika Jaisinghani.
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