(Reuters) - U.S. stocks fell to multi-week lows on Thursday, as disappointing early Big Tech earnings revived concerns about heavy AI spending, while another jump in oil prices added to inflation worries.
The tech-heavy Nasdaq led losses, briefly hitting its lowest level in over two months and falling more than 7% below its early-June record high. The S&P 500 and the Dow also touched about one-month lows.
Second-quarter results from Alphabet (GOOGL.O), opens new tab and Tesla (TSLA.O), opens new tab, the first of the so-called "Magnificent Seven" megacap companies to report this season, failed to impress investors.
"The concern about spending among these larger technology companies has been brewing for a while," said Chris O’Keefe, managing director and lead portfolio manager at Logan Capital Management.
"Google's capex plans were one of those data points that really freaked people out, and the fact that cash flow has gone negative is something investors are circling."
Shares of Google's parent fell 7.3% after the results did little to reassure investors as attention shifted to its higher spending plans and its first ever cash burn.
The stock's fall dragged the communication services (.SPLRCL), opens new tab sector 5.6% lower, leading sector-wise losses on the benchmark S&P 500.
Tesla dropped 12.2% after reporting negative free cash flow for the second quarter for the first time in more than two years.
Other megacap stocks also weakened. Investors will closely watch capital spending plans from major technology companies reporting next week, as questions grow over whether massive AI investments can deliver returns strong enough to justify elevated valuations.
Geopolitical concerns added to the pressure. After months of investor focus on the Strait of Hormuz, attention has shifted to the Red Sea, where Iranian-aligned Houthis, who control areas near the Bab el-Mandeb strait, have opened a new front in the Middle East crisis.
U.S. President Donald Trump vowed "major military punishment" for Iran and Houthis, after the Yemeni fighters struck two Saudi oil tankers in the Red Sea.
And defence companies are facing a once-in-a-generation opportunity.
Brent crude futures rose past $100 a barrel, their highest level since late May.
Wall Street's fear gauge, the CBOE Volatility Index (.VIX), opens new tab, rose 3.21 points to 19.83, its highest in nearly a month.
The surge in oil prices revived inflation worries, pushing interest-rate-sensitive 2-year Treasury yields to a 17-month high as traders increased bets on a Federal Reserve rate hike as early as next week.
Markets are now pricing in about a 36% chance of a 25-basis-point increase at the Fed's July meeting, up from 12% a week ago, according to CME's FedWatch tool.
The number of Americans seeking unemployment benefits for the first time fell sharply last week, leaving Fed officials to keep their focus on containing inflation.
At 11:55 a.m. ET, the Dow Jones Industrial Average (.DJI), opens new tab fell 534.25 points, or 1.02%, to 51,684.33, the S&P 500 (.SPX), opens new tab lost 101.77 points, or 1.36%, to 7,397.19 and the Nasdaq Composite (.IXIC), opens new tab lost 620.61 points, or 2.42%, to 25,070.29.
Chip stocks, which have recently hit a volatile patch, were also lower mostly. Texas Instruments (TXN.O), opens new tab fell 3.1% despite forecasting quarterly revenue above estimates.
Defense giant Lockheed Martin (LMT.N), opens new tab rose 10.3% after lifting 2026 sales and profit forecasts.
Thermo Fisher Scientific (TMO.N), opens new tab jumped 9.8%, as the medical equipment maker raised its annual profit forecast after beating estimates for second-quarter results.
Declining issues outnumbered advancers by a 3.18-to-1 ratio on the NYSE and by a 3.16-to-1 ratio on the Nasdaq.
The S&P 500 posted 17 new 52-week highs and 12 new lows, while the Nasdaq Composite recorded 35 new highs and 118 new lows.
Reporting by Ragini Mathur and Avinash P in Bengaluru, additional reporting by Purvi Agarwal; Editing by Amanda Cooper, Shinjini Ganguli and Maju Samuel