Feb 5 - Markets grew unsettled as the start of the big-tech earnings season coincided with a surprising capital expenditure projection from one of the sector's largest companies. Investors had been positioned for another round of strong revenue results and upbeat outlooks from major U.S. technology firms, and many increased their exposures ahead of disclosures. That strategy has so far proved risky.
Alphabet reported solid quarterly results after the close of trading, but its guidance for capital spending - between $175 billion and $185 billion this year - far exceeded analysts' expectations. The unusually large capex target amplified worries that investments tied to artificial intelligence are accelerating faster than many forecasters and market participants had assumed.
Those concerns fed into trading dynamics immediately after hours. Alphabet's shares swung sharply, falling by more than 6% at one point before ending the session about 0.4% lower. The scale of the capex plan also heightened scrutiny of valuation levels across the sector, which many participants already view as elevated. The combination of lofty valuations and growing evidence that AI can displace roles in areas such as data analytics and software has contributed to a risk-off tone, with some investors concluding that downside pressure is more likely than further gains.
Market reactions were mixed across related names. Chipmakers, which could stand to benefit from increased AI-related spending, showed resilience; Nvidia's shares rose roughly 2% after the bell. By contrast, equipment suppliers in Asia retreated sharply, with markets in South Korea down about 3.5% and Taiwan off near 1%.
Attempts by Wall Street futures to rebound lost steam as selling spread beyond technology into other asset classes. Precious metals were particularly hard hit: silver plunged around 14% while gold slid to levels described as well below $5,000 per ounce.
Looking ahead to Thursday, European futures signaled a soft open as investors awaited policy decisions from the European Central Bank and the Bank of England. Both central banks are forecast to maintain current interest rates at their upcoming meetings. The ECB is expected to indicate that no immediate policy move is planned, even as the euro's recent appreciation against the dollar raises the risk that inflation could undershoot the central bank's target. The BoE is anticipated to keep its stance flexible on the timing of future rate cuts, monitoring labor market signals closely to determine whether a weakening jobs market will sufficiently ease inflationary pressures.
Key data and events that could shape market direction on Thursday include the ECB and BoE policy meetings and January purchasing managers' index readings for the euro zone as well as Germany and France.