Dow Futures associated with the primary U.S. stock indices are experiencing a modest increase, as investors evaluate a recent announcement regarding interest rates from the Federal Reserve. The central bank maintains its current borrowing costs; however, three members advocate for a rate increase in light of impending inflationary pressures. Shares of Microsoft and Meta Platforms are trending in divergent paths, as investors analyse the distinct artificial intelligence expenditure strategies of the two companies.

Dow futures remained steady on Thursday. By 01:55, the Dow futures contract had increased by 27 points, or 0.1%, the S&P 500 futures had advanced by 15 points, or 0.2%, and the Nasdaq 100 futures had gained 133 points, or 0.5%. The primary stock averages on Wall Street experienced a decline in the previous session, as market participants focused on remarks from Fed Chair Kevin Warsh regarding the central bank’s strategy to address persistent inflation (more below). Meanwhile, there was yet another downturn in chipmaking stocks, continuing a trend observed this week. The Philadelphia Semiconductor Index, which monitors significant stocks within the chip industry, experienced a decline of 5.33% and has now decreased by over 14% in the last five sessions. The Nasdaq 100 index has also entered a correction, characterised by a decline of 10% or more from its recent peak. Ongoing concerns regarding the sustainability of extensive investments in artificial intelligence infrastructure, such as chips and data centers, coupled with indications of rising competition from China, have tempered the previously exuberant sentiment surrounding semiconductor shares. Those concerns faced a significant evaluation following the market’s closure, as Microsoft and Meta Platforms emerged as the inaugural AI “hyperscalers” — or large-cap firms investing substantial sums into AI — to disclose their most recent financial outcomes (more below). Highlighting the various challenges currently facing the markets, a resurgence of air exchanges between the U.S. and Iran loomed over trading activities.Brent crude futures, the global oil benchmark, were last observed at an increase of 1.4%, reaching $92.01 a barrel, following a rise of approximately 7% on Wednesday.

The Fed decided to maintain interest rates within the range of 3.5% to 3.75% at the end of its recent two-day meeting on Wednesday, despite three members advocating for an increase in borrowing costs. Perhaps the most significant challenge facing policymakers has been inflation, which has remained persistently elevated above the Fed’s 2% target, primarily due to the energy shock triggered by the Iran war. Consumer price data for June was softer than expected; however, oil prices have fluctuated significantly throughout the month, mirroring the intermittent dynamics of the Middle East conflict. In theory, the Federal Reserve could mitigate price pressures by increasing interest rates. However, such a move could jeopardise a labour market entrenched in a landscape of subdued hiring and restrained dismissals. Warsh, who was overseeing his second rate decision since taking over at the helm of the central bank, emphasised that while officials opted to maintain rates in July, it does not imply they are unprepared to take action. “There was nothing inertial about our discussions,” Warsh said. When questioned about the potential of a rate hike to mitigate inflation, Warsh contended that although it is a tool available to the Fed, “I wouldn’t say it’s in isolation.” He noted that elevated longer-term interest rates since the Fed’s June meeting might be facilitating some of the central bank’s efforts. Long-dated U.S. Treasury yields increased as investors analysed Warsh’s remarks for insights regarding the Federal Reserve’s forthcoming policy decisions. Yields typically exhibit an inverse relationship with prices. “[T]he vague and arguably counterproductive communications from […] Warsh during the press conference make forecasting the Fed’s next move even trickier than it already was,” said Thomas Ryan.

On the earnings front, Microsoft achieved significant growth in its crucial cloud business alongside an increase in paid AI subscribers, as the software giant confronts enquiries regarding its capacity to convert substantial data-center expenditures into steady profits. Revenue increased by 18% to $90 billion in the quarter that concluded in June. Net income, in turn, surged by 31% to $35.8 billion, surpassing market expectations. Notably, CEO Satya Nadella provided investors with insights into revenue at Microsoft’s AI-enhanced Azure cloud unit, revealing that the division’s top-line result exceeded $100 billion for the first time in the fiscal year that concluded in June. Typically, Microsoft refrains from providing a distinct breakdown of Azure’s revenue, a crucial figure that analysts utilise for comparison with Google’s competing cloud division. Last week, Google detailed cloud revenue projections that are set to hit $100 billion within the next year. Microsoft offered limited indications that it might alter its AI expenditure strategies. The company expended $41 billion on capital expenditures in the quarter that concluded in June, reflecting a 69.4% increase compared to the previous year, thereby elevating the annual total to $145.3 billion. However, investors seemed to express contentment with Azure’s robust performance. Shares of Microsoft experienced an increase exceeding 7% during after-hours trading.

Meanwhile, Meta Platforms experienced a decline of over 7% in after-hours trading, despite the Facebook owner’s achievement of record second-quarter sales amounting to $60.8 billion. Traders were concentrating on Meta’s revised spending forecast, which indicated capital expenditures of at least $130 billion this year, an increase from the previous estimate of $125 billion. Meta upheld the upper limit of its spending range at $145 billion. Executives were anticipated to address any apprehensions regarding Meta’s expenditure path and AI revenue generation strategy during a post-earnings call; however, the decline in the stock indicated that these concerns may not have been promptly alleviated. Complicating matters further was the company’s free cash flow, which dipped to below $1 billion, while quarterly profit fell by 14% to $18.3 billion. Meta’s current-quarter revenue guidance fell short of expectations, and the group cautioned that legal proceedings concerning social media’s effects on young users could lead to a significant loss. Megacap tech sector earnings will be in focus yet again on Thursday, when iPhone-maker Apple and e-commerce titan Amazon report.

In the aftermath of trading hours, Qualcomm’s shares experienced a decline, attributed to disappointing guidance for the current quarter. The semiconductor firm indicated that it would increase product prices to address a rise in costs, as CEO Cristiano Amon noted that the broader chip industry is facing elevated memory and manufacturing expenses, in addition to supply chain disruptions associated with surging data center demand. Adjusted earnings per share in the third quarter of $2.21 fell slightly short of FactSet estimates. Revenue decreased by 4% to $9.95 billion, although it exceeded projections. Elsewhere, Starbucks reported third-quarter results that exceeded projections, supported by increasing traffic growth in its primary North American market and enhancements in operations as part of its strategic turnaround initiative. Shares experienced a 4% increase during after-hours trading. Chipotle Mexican Grill reported a quarterly performance that exceeded expectations on both revenue and earnings, driven by the expansion of new restaurant locations and advancements in its branding strategy. This success has led the fast-food chain to revise its full-year comparable sales forecast upwards. Shares of the burrito chain experienced an increase in after-hours trading.