Stocks closed mostly lower Thursday as poorly received Magnificent 7 earnings and concerns about AI spending sparked a sell-off across the tech sector. Ahead of next week's Federal Reserve meeting, market participants are also worrying about how rising oil prices will impact inflation and interest rates.
At the close, the tech-heavy Nasdaq Composite was down 2.6% at 26,008 and the broader S&P 500 was 1.2% lower at 7,663, while the blue-chip Dow Jones Industrial Average ticked 0.02% higher to 52,867.
Oil prices climbed after President Donald Trump said late Wednesday that the U.S. is not currently negotiating with Iran to end the war in the Middle East. Front-month West Texas Intermediate crude futures rose 3% to $100.06 per barrel, and are now up nearly 11% month to date.
Meta sinks on free cash flow worries
Meta Platforms (META) was one of the biggest drags on the Nasdaq Thursday, with the Facebook parent sliding 7% after earnings, marking its worst day since July.
Meta's third-quarter revenue of $64.6 billion beat Wall Street's estimate, as did its fourth-quarter revenue forecast. But earnings of $3.83 per share fell short, and free cash flow turned negative as spending on its AI initiatives ramped up.
The company raised the low end of its full-year capex, now expecting to spend between $135 billion and $145 billion, compared to its previous outlook of $130 billion to $145 billion.
"In our view, Meta is entering a capex harvest cycle, with three years of investment in frontier AI models beginning to translate into both stronger near-term advertising performance and accelerating adoption of AI products," says UBS Global Research analyst Stephen Ju. "We believe Meta can further improve ad targeting and content recommendations through optimized versions of its Muse model, creating upside to our 2027 and 2028 revenue forecasts."
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Meta also said its board of directors approved the establishment of non-voting Class C shares, which will be publicly traded and distributed to those who own its Class A common stock and Class B super-voting shares.
The Class C shares will begin trading in January 2027, and the price of the Class A shares will "reflect the effect of a two-for-one stock split," says Meta.
Part of the reason Meta is creating the new Class C shares, the company explains, is to preserve CEO Mark Zuckerberg's voting control and ensure he remains in California to lead the company, both of which were at risk pending passage of California's proposed wealth tax in November. It will also help fund the company's AI expansion plans.
Tesla falls after earnings
Tesla (TSLA) was another Magnificent 7 stock that slumped after its late-Wednesday turn on the earnings calendar, with the electric vehicle (EV) maker shedding 3.1%.
The company reported third-quarter earnings of 48 cents per share on revenue of $28 billion, which was higher than analysts expected, but lower than the year prior.
TSLA also said operating expenses jumped 39% in Q3, which dragged on margins. Additionally, the company lowered its full-year capex forecast to $20 billion from $25 billion.
"With regard to a potential merger with SpaceX (SPCX, -9.1%), I think I said everything that should be said yesterday, tap-dancing through a minefield there," noted CEO Elon Musk on Tesla's earnings call. "And yes, that's it. "
Procter & Gamble has its best day in six years after earnings
Procter & Gamble (PG) found itself on the positive side of the ledger after earnings, rising 5.6% — the Dow Jones stock's best day since March 26, 2020, when it rose 6.4%, according to Morningstar.
The consumer products giant reported higher-than-expected fiscal 2027 first-quarter earnings and revenue, while volume growth jumped 2.4% year over year.
"We are getting the balance between pricing and product improvements, package improvements, claims, communication and retail execution right," Chief Financial Officer Andre Schulten said on the earnings call. "But it's also a very fragile balance that we want to make sure we don't compromise on, so we will price, and we will price with innovation, not jeopardizing the top-line momentum."