Jan 31 (Reuters) - 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 (GOOGL.O), opens new tab slumped 6.9%, pushing the S&P 500 communication services sector (.SPLRCL), opens new tab 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 (MSFT.O), opens new tab 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 (TSLA.O), opens new tab growth warning last week, have prompted renewed focus on risks from the outsized weighting of the megacap names in the S&P 500 (.SPX), opens new tab that have collectively pushed the benchmark index to record highs in recent weeks.
Apple (AAPL.O), opens new tab, Meta Platforms (META.O), opens new tab and Amazon.com (AMZN.O), opens new tab, set to deliver their earnings on Thursday, fell between 1.6% and 2.3%.
Advanced Micro Devices (AMD.O), opens new tab 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 (INTC.O), opens new tab, Broadcom (AVGO.O), opens new tab and Marvell Technology (MRVL.O), opens new tab declined between 0.2% and 1.8%.
Supporting the blue-chip Dow, Boeing (BA.N), opens new tab 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 (.DJI), opens new tab was up 56.62 points, or 0.15%, at 38,523.93, the S&P 500 (.SPX), opens new tab was down 33.37 points, or 0.68%, at 4,891.60, and the Nasdaq Composite (.IXIC), opens new tab 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 (TMO.N), opens new tab 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
Reporting by Ankika Biswas and Johann M Cherian in Bengaluru; Editing by Shinjini Ganguli
