Wall Street Drops on AI Spending Fears, $98 Oil
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- U.S. stock futures fell across all three major indexes Thursday morning, with Dow E-minis down 225 points (0.43%), S&P 500 E-minis down 0.39%, and Nasdaq 100 E-minis down 0.37% as AI spending fears and rising oil prices hit sentiment.
- Alphabet (GOOGL.O) posted its strongest-ever quarter of cloud computing growth but still saw shares drop 3.9% in premarket trading as investors pivoted from the top-line beat to its higher spending plans.
- Tesla (TSLA.O) slid 5.8% after reporting negative free cash flow in the second quarter for the first time in more than two years, with eToro's Lale Akoner saying the company 'still needs to prove that its ambitious projects can move from technological promise to commercial returns.'
- Brent crude futures climbed to $98 a barrel — their highest level since early June — after Iranian-aligned Houthis attacked Saudi tankers in the Red Sea near the Bab el-Mandeb strait, opening a new chokepoint threat beyond the Strait of Hormuz.
- Fed rate-hike expectations spiked, with markets now pricing a 35% chance of a 25-basis-point increase at the Fed's July meeting — up from just 12% a week earlier — as 2-year Treasury yields hit a 17-month high; September hike odds stand at 55%.
- ServiceNow (NOW.N) bucked the broader selloff, jumping 8.1% after raising its annual subscription revenue forecast for the second time this year on AI-driven demand.
Why it matters: The Fed-hike probability tripled in a single week (12% to 35% for July) as the oil shock met stretched AI-capex valuations, putting direct pressure on rate-sensitive sectors and the elevated multiples that have defined megacap tech. Alphabet and Tesla's diverging receptions — cloud revenue records punished, cash burn also punished — show investors now demand proof that AI spending converts to returns, not promises.
