By Lisa Pauline Mattackal

(Reuters) -Wall Street futures tumbled on Thursday as warnings from Meta Platforms and Microsoft about rising AI-related costs dampened optimism around megacap stocks, which have been the market’s primary driver this year.

Shares of Facebook-owner Meta slumped 3.5% and Microsoft dropped 3.9% in premarket trading, despite both companies beating earnings estimates in results reported after the bell on Wednesday.

Markets were also on edge ahead of the release of the Personal Consumption Expenditures index, the U.S. Federal Reserve’s preferred inflation metric, for insight on how much the central bank could ease borrowing costs in the last two months of 2024. Nonfarm payrolls data is also due on Friday.

Meta warned of “significant acceleration” in AI infrastructure investments. Microsoft predicted slower growth in its Azure cloud business, signaling that the company’s already hefty AI investments were not enough to keep pace with capacity constraints.

The other so-called Magnificent Seven megacap stocks also slipped, with Nvidia losing 1.5% and Alphabet down 0.7%, giving up some gains after soaring in the previous session following upbeat results.

Amazon.com lost 1% and Apple dipped 0.2% 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 market is unforgiving of any AI-related company that fails to significantly outperform,” said Dan Coatsworth, investment analyst at AJ Bell.

“Meta is the latest stock to feel the wrath of investors, despite extending its track record of doing better than analyst forecasts on key financial measures.”

Dow E-minis were down 206 points, or 0.49%, S&P 500 E-minis were down 43.25 points, or 0.74% and Nasdaq 100 E-minis were down 180.75 points, or 0.88%.

The VIX, Wall Street’s “fear gauge”, rose to a more than three-week high as investors brace for more volatility from corporate results, the upcoming U.S. presidential election and the central bank’s November meeting in the next few weeks.

The benchmark index is set for its sixth straight month of gains in October, and the Nasdaq Composite is set to rise over 2%, though the Dow is on track to decline slightly.

In results-driven moves, e-commerce firm eBay fell 9% following downbeat revenue forecasts, while trading platform Robinhood slumped 10.5% after its third-quarter earnings missed expectations.

Uber Technologies shares dropped 6.5% after the company forecast fourth-quarter gross bookings below expectations.

Estee Lauder plummeted 16.6% after the cosmetics company withdrew 2025 annual forecasts and cut its dividend.

Of the S&P 500 companies that have reported results so far, 77.4% have beaten analysts expectations, about in line with the 79% average beat rate of the past four quarters as per LSEG data as of Wednesday.

(Reporting by Lisa Mattackal in Bengaluru; Editing by Pooja Desai)

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