Nasdaq Futures Down 0.97% on Meta, Microsoft Cost Warnings

Wall Street futures fell sharply Thursday, as warnings from Meta Platforms and Microsoft about rising artificial intelligence-related costs dampened optimism around megacaps, which have been the market's primary driver this year.

At 7:04 a.m. ET, Dow E-minis were down 200 points, or 0.47%, S&P 500 E-minis were down 43.50 points, or 0.74% and Nasdaq 100 E-minis were down 199 points, or 0.97%.

Shares of Facebook-owner slumped 4%, while Microsoft dropped 3.7% in premarket trading. Both companies beat earnings estimates in results reported after the bell on Wednesday.

Markets were 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 and 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.

Though 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. 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," said Dan Coatsworth, investment analyst at AJ Bell.

The other so-called Magnificent Seven megacap stocks fell, with Nvidia losing 1.5% and Alphabet down 1.1%, giving up some gains after soaring in the previous session following upbeat results.

Amazon.com lost 1.3% and Apple dipped 0.3% ahead of quarterly results from both, due after market close.

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.

Ecommerce firm eBay fell 9% following downbeat revenue forecasts, while trading platform Robinhood slumped 10.3% after its third-quarter earnings missed expectations.

Monolithic Power Systems dropped 9.7% after results, with other chip firms also sliding after a set of dour forecasts weighed on the sector's outlook.

Earnings from companies including Uber Technologies , Mastercard, Bristol-Meyers Squibb and ConocoPhillips are due before markets open.