U.S. stocks fell sharply on Thursday as disappointing reactions to earnings from Alphabet and Tesla sparked a broad technology sell-off, while surging oil prices and escalating tensions in the Middle East added to investor concerns. The Nasdaq Composite led the declines, with the S&P 500 and Dow Jones Industrial Average also moving lower as traders reassessed the outlook for artificial intelligence spending and inflation.
The pullback came after two of the market's largest technology companies signaled that capital expenditures will remain elevated for years to come. While both companies reported solid revenue growth, investors focused instead on the mounting costs of building AI infrastructure, fueling concerns that returns on those investments may take longer to materialize.
Market Movers:
- Hyliion (HYLN) +14%: Shares soared after the company secured a $41.7 million U.S. Navy contract to develop and deliver KARNO power generation systems. The award represents a major endorsement of Hyliion's technology and strengthens its position in advanced power generation.
- United Rentals (URI) +13%: The equipment rental company jumped after reporting record quarterly revenue and earnings while raising its full-year outlook. Strong demand from large construction and industrial projects, along with healthy customer backlogs, supported the optimistic guidance.
- Lockheed Martin (LMT) +11%: Shares rallied after the defense contractor beat quarterly expectations and raised its full-year forecast. Strong demand for missile systems, military aircraft, and precision weapons helped lift its backlog to a record $230 billion.
- RTX (RTX) +8%: The aerospace and defense company gained after delivering better-than-expected earnings and increasing its guidance. Robust commercial aerospace demand and continued strength across its defense business pushed its backlog to an all-time high.
- ServiceNow (NOW) +5%: Shares advanced after the enterprise software company exceeded earnings estimates and raised its subscription revenue outlook, citing rapid adoption of its AI-powered software platform.
- Tesla (TSLA) -12%: Shares plunged after weaker profitability overshadowed record revenue growth. Margin compression, negative free cash flow, and management's warning that 2026 will require even heavier capital spending weighed heavily on investor sentiment.
- American Airlines (AAL) -7%: The airline fell after cutting its full-year earnings outlook, warning that soaring fuel costs are expected to significantly reduce profitability despite continued strength in premium leisure and corporate travel demand.
- Alphabet (GOOG, GOOGL) -6%: Shares declined even after posting strong revenue growth, as investors focused on higher-than-expected AI infrastructure spending, weaker profitability, and increased capital expenditure guidance for next year.
AI Spending Faces Its Biggest Test Yet
Alphabet and Tesla's earnings reinforced a theme that has emerged across earnings season: companies remain committed to investing aggressively in artificial intelligence, but investors are becoming increasingly concerned about the costs. Alphabet raised its capital expenditure outlook once again as it expands cloud infrastructure to meet AI demand, while Tesla described 2026 as a "massive capex year" as it invests in robotaxis, Optimus humanoid robots, AI computing, and manufacturing capacity. Rather than celebrating these investments, markets reacted cautiously, reflecting growing skepticism over how quickly companies can generate meaningful returns from billions of dollars in AI-related spending.
Oil Prices and Geopolitics Add to Market Pressure
Technology earnings weren't the only challenge for investors. Oil prices climbed above $100 per barrel after renewed attacks on shipping in the Red Sea and continued military operations involving the U.S. and Iran heightened concerns about global energy supplies.
The rise in crude prices pushed Treasury yields higher as investors worried that energy-driven inflation could complicate the Federal Reserve's policy outlook. Stronger-than-expected jobless claims data also suggested the labor market remains resilient, reinforcing expectations that interest rates could remain elevated for longer.
Looking Ahead
Investors will continue digesting earnings from major technology companies as the market looks for evidence that massive AI investments can ultimately deliver stronger profits and cash flow. Reports from companies such as Intel and T-Mobile later this week will provide additional insight into both technology spending and consumer demand. At the same time, geopolitical developments and energy markets are likely to remain key drivers of sentiment. With oil prices climbing, Treasury yields rising, and AI spending under greater scrutiny, markets appear to be entering a more challenging phase where strong revenue growth alone may no longer be enough to satisfy investors.
