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Wall Street tumbled on Thursday, after warnings from Microsoft and Meta Platforms about escalating AI costs curtailed enthusiasm for megacap stocks, which have driven the market rally this year.

Shares of Facebook-owner Meta Platforms dropped 4%, while Microsoft fell 5.6%, despite both companies beating earnings estimates in results reported after the bell on Wednesday.

“The market, overall, has been disappointed with mega tech guidance, especially with regard to Meta’s AI expenditures as well as slower-than-anticipated integration of AI into Microsoft’s cloud platform,” said Quincy Krosby, chief global strategist for LPL Financial.

The yield on the benchmark 10-year Treasury note also rose, past 4.3%, further pressuring equities.

Meanwhile, the Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation metric, rose 0.2% in September, in line with economists’ expectation. However, the core figure was 2.7% year-over-year, slightly higher than the 2.6% forecast, while consumer spending increased a little more than expected.

After the data, traders stuck to bets for a 25-basis-point rate reduction in the Fed’s November meeting.

Wall St gains as Alphabet lifts Nasdaq to fresh record high

“Despite some stickiness to core PCE measures, overall PCE continues to trend lower… while December’s (Federal Reserve) rate cut may not be such a certainty, a rate cut in November is firmly on the table,” said Bret Kenwell, eToro U.S. Investment Analyst.

Microsoft and Meta both said their capital expenses were growing due to AI investments, which could impact profitability, even as investors look for quick returns on the billions already poured in.

Other so-called Magnificent Seven stocks slipped. Amazon.com was down 3.4% and Apple dropped 1.4% ahead of quarterly results from both, due after market close.

Although betting on AI-driven tech stocks propelled Wall Street to record highs this year, investor exuberance has meant stocks are trading at incredibly expensive valuations. Meta and Microsoft’s warnings point to the challenges companies face in pleasing investors.

The Dow Jones Industrial Average fell 355.91 points, or 0.84%, to 41,785.63, the S&P 500 lost 92.83 points, or 1.60%, to 5,720.84 and the Nasdaq Composite lost 464.96 points, or 2.50%, to 18,142.97.

The Information Technology sector slumped 3.3%, on track for its worst day since early September. While upbeat results from ConocoPhillips as well as Entergy lifted Energy and Utilities.

An index of chip stocks slumped 4.3%, led by an 18.2% loss in Monolithic Power Systems following its results.

Nvidia lost 4.6%.

The day’s losses put all three main indexes on track for monthly declines.

The VIX, Wall Street’s “fear gauge”, touched its highest since early September as investors brace for more volatility from corporate results, the upcoming U.S. presidential election as well as the central bank’s November meeting in the next few weeks.

In other results-driven moves, Estee Lauder plummeted 19.6%, on track for its worst day on record, after the cosmetics company withdrew its 2025 annual forecasts.

Shares of Uber Technologies plunged 11.7% after the company forecast fourth-quarter gross bookings below expectations.

Declining issues outnumbered advancers by a 2.8-to-1 ratio on the NYSE, and by a 3.08-to-1 ratio on the Nasdaq.

The S&P 500 posted 23 new 52-week highs and six new lows, while the Nasdaq Composite recorded 47 new highs and 120 new lows.

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