US STOCKS-Nasdaq set to open lower as tech giants disappoint; Fed verdict in focus

The tech-heavy Nasdaq was set for a lower open on Wednesday, as Alphabet and Microsoft's projections for rising AI costs dented megacap and chip stocks ahead of a crucial U.S. policy decision expected later in the day. Alphabet slumped 5.5% in premarket trading after the company reported holiday-season advertising sales below expectations and projected higher spending this year on items such as servers to power artificial intelligence.

The tech-heavy Nasdaq was set for a lower open on Wednesday, as Alphabet and Microsoft's projections for rising AI costs dented megacap and chip stocks ahead of a crucial U.S. policy decision expected later in the day.

Alphabet slumped 5.5% in premarket trading after the company reported holiday-season advertising sales below expectations and projected higher spending this year on items such as servers to power artificial intelligence. Microsoft, too, slipped 0.2% after forecasting rising costs to develop new artificial-intelligence features. Its decline was limited by the company's quarterly results beat.

Even though the tech pioneers talked up how customers are lapping up their generative AI-powered products, mounting development costs for the cutting-edge features irked investors hoping for a big boost to sales from the new technology. "Definitely costs are playing on their minds, but also a lot of this is: will AI actually translate into profits and justify the valuations that these stocks have had or will AI become a fad," said Adam Sarhan, chief executive of 50 Park Investments.

The tech results and forecasts, coupled with Tesla's growth warning last week, have prompted renewed focus on risks from the outsized weighting of the so-called "Magnificent Seven" stocks in the S&P 500 that have collectively pushed the benchmark index to record highs. Apple, Meta Platforms and Amazon.com , set to deliver their earnings on Thursday, fell between 0.2% and 2.4%. Together they comprise Magnificent Seven with Tesla, Microsoft, Alphabet, and Nvidia.

Advanced Micro Devices dropped 4.7%, as the chipmaker's first-quarter revenue forecast and a boosted projection for AI processors failed to meet expectations. Other chip stocks Nvidia, Intel, Broadcom and Marvell Technology declined between 0.7% and 2%.

Boeing rose 1.6% incongruously after CEO Dave Calhoun delayed a financial or delivery forecast for 2024 the company, saying it has "much to prove" to regain regulators and customer confidence. The focus was now on the Federal Reserve's first monetary policy decision for this year, at 2 p.m. ET. The Fed is widely expected to hold rates steady.

With an improved inflation outlook upping the possibility of policy easing sooner than later, investors will be scavenging for any hints on when the first rate cut might arrive, another key element that could determine the fate of the heavily weighted tech and tech-adjacent stocks. The ADP National Employment report showed private payrolls rose by 107,000 in January, far less than the estimated 145,000 increment, a day after the JOLTS report reflected an unexpected rise in December job openings.

At 8:28 a.m. ET, Dow e-minis were up 57 points, or 0.15%, S&P 500 e-minis were down 20 points, or 0.4%, and Nasdaq 100 e-minis were down 162 points, or 0.92%. Among others, Tesla shed 2.8% after a Delaware judge tossed out Elon Musk's record-breaking $56 billion Tesla pay package.

Thermo Fisher Scientific dropped 2% after the medical equipment maker forecast annual profit below estimates.