US futures slide after Alphabet's earnings stoke AI-spending worries; Amazon is next

Ahead of yesterday's wave of big tech earnings, Wall Street had been hoping for some evidence that the huge sums invested in AI would one day pay off. Instead, Alphabet gave investors fresh cause to ask whether the AI spending spree has gone too far. So much for the idea that these earnings reports would ride in and rescue the market.

Futures on the S&P 500 are down 0.5%, while Nasdaq futures have fallen 1.4%, as the market takes in a mixed batch of results from overnight trading.

The biggest source of damage was Alphabet, the parent company of Google.

Alphabet shares dropped roughly 10% in after-hours trading, cutting almost $400 billion from its market value. The report put Google Cloud revenue at more than twice the year-earlier figure. But earnings that missed expectations and a negative free cash flow for the quarter have investors questioning just how much the company is spending on AI. It is an uncomfortable sign.

The results did at least demonstrate that growth exists. The question is how expensive it will be to keep it going.

Microsoft, on the other hand, provided some comfort, with its shares up nearly 4% in after-hours trading. That followed stronger Azure growth and cash flow that came in better than expected.

There were also significant moves among smaller software companies. ServiceNow shares were down about 19%, and Fortinet declined almost 25%, after disappointing earnings and guidance added to the broader weakness in tech.

Even so, I would not say the whole structure is about to collapse. The selling so far looks contained and limited to a few names, especially Alphabet, rather than a broad rush out of technology. At the same time, Dow futures are up 0.4%, a sign that money is rotating elsewhere.

Either way, my read is that investors are increasingly unforgiving of companies that spend billions and fail to show enough in return.

The market's response to Alphabet reinforces that attitude, and the next test is not far off. Attention will turn to Amazon later today.

AWS growth will naturally draw plenty of attention. But the bigger focus for investors is likely to be what Amazon says about its AI capital spending and the payback it expects from that outlay.

At this point, I doubt even strong cloud growth will be enough to satisfy Wall Street. Amazon needs to show up with some credible explanations.