US STOCKS-Nasdaq sinks to 1-week low on Alphabet disappointment; Fed verdict in focus

The tech-heavy Nasdaq tumbled to more than a week low on Wednesday, as Alphabet's projections for rising AI costs dented most megacap and chip stocks ahead of a crucial U.S. policy decision expected later in the day. Alphabet slumped 6.9%, pushing the S&P 500 communication services sector 3.5% lower, 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 tumbled to more than a week low on Wednesday, as Alphabet's projections for rising AI costs dented most megacap and chip stocks ahead of a crucial U.S. policy decision expected later in the day.

Alphabet slumped 6.9%, pushing the S&P 500 communication services sector 3.5% lower, 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 also forecast higher costs to develop new artificial-intelligence features, but delivered upbeat quarterly results. The stock was down 0.5% in choppy trade.

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 megacap names in the S&P 500 that have collectively pushed the benchmark index to record highs in recent weeks. Apple, Meta Platforms and Amazon.com , set to deliver their earnings on Thursday, fell between 1.6% and 2.3%.

Advanced Micro Devices dropped 2.7%, 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 0.2% and 1.8%.

Supporting the blue-chip Dow, Boeing rose 3.6% following upbeat results, though the plane maker delayed annual financial or delivery forecast. 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.

Any hints on when the first rate cut might arrive could also help 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 9:48 a.m. ET, the Dow Jones Industrial Average was up 56.62 points, or 0.15%, at 38,523.93, the S&P 500 was down 33.37 points, or 0.68%, at 4,891.60, and the Nasdaq Composite was down 205.83 points, or 1.33%, at 15,304.07. Among others, Tesla shed 0.8% after a Delaware judge tossed out Elon Musk's record-breaking $56 billion Tesla pay package.

Thermo Fisher Scientific dropped 2.9% after the medical equipment maker forecast annual profit below estimates. Declining issues outnumbered advancers for a 1.03-to-1 ratio on the NYSE and a 1.18-to-1 ratio on the Nasdaq.

The S&P index recorded 54 new 52-week highs and one new low, while the Nasdaq recorded 38 new highs and 52 new lows