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US tech stocks dropped sharply on Thursday after Microsoft reported a surge in data centre spending, reigniting investor nerves about the vast expenditure by Silicon Valley giants.
The Nasdaq Composite fell 2.1 per cent, while the broader S&P 500 was 1.1 per cent lower.
Microsoft tumbled 12 per cent, dragging the market lower, after the company reported a 66 per cent year-on-year surge in its data centre spending, taking its capital expenditure to $37.5bn in the three months to December.
The software group also reported slower than expected cloud growth, although adjusted net income and revenue both exceeded analysts’ expectations.
“The scale of spending is so high that there’s a laser focus on the monetisation of it,” said Venu Krishna, head of US equities strategy at Barclays.
Investors expressed nervousness about Microsoft’s over-reliance on OpenAI, with Wednesday’s results revealing that 45 per cent of Microsoft’s $625bn book of future cloud contracts came from the ChatGPT maker.
“The market is watching the exposure of Microsoft on OpenAI,” said Manish Kabra, head of US equity strategy at Société Générale.
The Financial Times reported on Thursday that OpenAI was in talks to raise close to $40bn in its upcoming funding round from Nvidia, Microsoft and Amazon — three of its largest infrastructure providers — reigniting fears about circular financing in the AI sector.
Oracle, which has signed a $300bn data centre deal with OpenAI, fell 5.1 per cent on Thursday, while Nvidia slid 1.9 per cent.
Better results from Meta on Wednesday evening sent its share price 8.1 per cent higher but failed to reassure traders about the broader sector.
Correlations between mega cap tech stocks “have declined to historic lows”, said Barclays’ Krishna.
“We have entered a new stage in the AI narrative,” he added. “We’ve moved from a ‘rising tide’ concept to a winners and losers phase, as the market tries to assess which business model has the edge.”
The price of oil jumped on Thursday as traders reacted to US President Donald Trump’s escalating threats against Iran.
Precious metals, which had jumped sharply on Thursday morning, reversed course after New York trading began, with some analysts suggesting that investors could be selling their holdings to meet margin calls on US tech stocks.
The price of gold was down 2.4 per cent on the day to $5,272, and silver was down 2.9 per cent to about $113.