Premarket movers: Microsoft rises; Alphabet drags software stocks lower

U.S. Technology stocks experienced a sharp division in premarket trading, as stronger-than-expected results from Microsoft offered reassurance about cloud computing and artificial intelligence demand, while an earnings miss from Alphabet and disappointing software results revived concerns about AI-related disruption, according to Investing.com.

The tech sell-off rattled international markets, building on earlier downturns that saw the Nasdaq close 2.2% lower as attention shifted toward the future of AI companies and chipmakers, The Guardian reported. Economists have drawn comparisons between the heavy influx of AI spending and the dot-com bubble of the early 2000s, noting that seven tech companies comprise a major share of the S&P 500's total value. Adding to market jitters, Swissquote senior analyst Ipek Ozkardeskaya noted that SpaceX is not yet part of the Nasdaq indices, but the fact that it is jumping on the bond train to fund excessive AI and infrastructure spending revives earlier concerns that Big Tech may be spending too much on AI infrastructure and increasingly financing that spending through debt, highlighting estimates from Morgan Stanley that AI-related borrowing will surpass $500bn this year.

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Amid these broader market anxieties, individual corporate earnings painted a contrasting picture on Wall Street. Microsoft shares climbed around 2.8% in premarket trading after reporting fiscal first-quarter earnings of $4.89 per share on revenue of $92.28 billion, topping analyst estimates of $4.72 per share and $90.61 billion in revenue, Investing.com reported. Azure revenue jumped 48% year-over-year, lifting Microsoft Cloud revenue by 31% in constant currency to $63.9 billion. Conversely, Alphabet shares plunged more than 10% before the bell as its third-quarter earnings per share came in at $2.12, missing the $3.02 analyst consensus, even as revenue rose 25% to $127.6 billion to slightly beat expectations of $127.22 billion.

Alphabet’s advertising revenue from its core search business grew at its slowest pace in five quarters. Management reported that users were embracing its AI Mode search feature, but those queries were being monetized more slowly than traditional searches. This followed an already turbulent period for the Google parent, which saw its stock drop 5% after the departure of two high-profile AI researchers, The Guardian noted.

The negative sentiment quickly spilled over into the broader software sector. Fortinet plunged around 25%, while ServiceNow fell 18.1% after posting its first adjusted earnings-per-share miss in six quarters alongside fourth-quarter revenue guidance that fell short of analyst expectations. Additional losses swept through the sector, pulling Salesforce down 4.3%, Palo Alto Networks down 6%, CrowdStrike down 5%, and Zscaler down 5.8%.

Other notable premarket movers included Marvell Technology, which fell 9.5% following a Bloomberg report that it was in advanced talks to acquire Lumentum Holdings for AI data-center infrastructure. Lumentum shares rose 5.6% on the news, though investors worried about financing given Lumentum's market capitalization of around $83 billion against Marvell's $221 billion valuation. Caterpillar dropped 9.7% despite reporting a sharp increase in third-quarter profit to $7.20 per share from $4.95 a year earlier. Chipotle Mexican Grill bucked the downward trend, rising 7% after indicating that marketing initiatives and new menu launches were expected to push comparable sales growth to around 3% to 4% by the end of the current quarter.

The turmoil extended far beyond U.S. Borders. Following Wall Street's declines, Asian markets experienced severe drops. South Korea's benchmark closed 10% down after chipmakers SK Hynix and Samsung Electronics closed over 12% lower, The Guardian reported, though Samsung subsequently saw fluctuating sessions alongside memory peers as reported by Yahoo Finance Australia. Japan's Nikkei 225 fell 3.5% at the close of one volatile session, though it later edged up 0.2% to 64,073.17. Meanwhile, international commodity markets reacted to geopolitical tensions, with Brent crude oil falling 1.2% to $110.32 per barrel, remaining significantly elevated compared to levels seen before the Iran war began in late February.

Macroeconomic pressures compounded the market unease. The Federal Reserve held interest rates steady during its policy meeting ending on Wednesday, though two officials favored a hike and analysts suggest a rate increase in December remains likely due to persistent inflation, Yahoo Finance Australia noted. Bond yields also fluctuated, with the 10-year U.S. Treasury yield easing to below 5.00% after briefly touching approximately 5.04%.