Stocks drop as Meta fans AI worries, Treasuries gain

By Caroline Valetkevitch and Amanda Cooper

NEW YORK/LONDON, Oct 22 (Reuters) - Stock indexes fell on Thursday, after Meta's earnings report reignited worries about the AI boom's heavy capital spending, sending investors to the safety of US Treasuries. 

Brent crude hit a five-month high following Houthi attacks in Saudi Arabia, which stoked concerns of further disruption to global energy supplies.

The Nasdaq, weighed down by chip stocks, fell 2.6% in its biggest daily percentage drop since early June, while MSCI's All-World index was off 1.3%.

Tech shares in Seoul, Tokyo, Amsterdam and Paris fell earlier. 

Shares of Meta Platforms dropped 7% after reported quarterly results on Wednesday. Meta's third-quarter revenue beat expectations, but the company said it would issue non-voting stock, a plan that revived concern over its mounting capital commitments and the heavy spend of AI hyperscalers more generally.

An index of semiconductors, among the biggest beneficiaries of AI spending, fell 6.7% in its biggest daily percentage decline since June 23.

Shares of Tesla, which also reported earnings and cut its spending forecast, dropped 3.1%. Reuters reported that some Tesla insiders are concerned that CEO Elon Musk's public comments on a potential merger with SpaceX could invite shareholder scrutiny and complicate deal talks. Shares of SpaceX ended down 9%.

Investors' shifting views over AI spending have added volatility to the market. The Nasdaq's Thursday selloff followed a 1% rally on Wednesday.

"To the extent investors believe that those (AI) earnings are real... they are buyers of these stocks," said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

"But periodically, when they look at current earnings and the amount they're going to have to spend, they become concerned that these stocks are all overpriced."

TREASURIES GAIN IN SAFETY PLAY

US Treasuries rose, pushing yields lower, as the stock market's fall boosted the safe-haven appeal of government debt.

The yield on the benchmark US 10-year Treasury note was down 19.3 basis points at 4.953%, its biggest daily drop since March 10, 2023. It has dropped since rising to 5.3645% on October 7, highest since April 2002. Yields and prices move in opposite directions.

"They are rotating out of techs, out of the AIs, and into the more safety trades, whether it's bonds or some of those big Dow Jones stocks," said Joe Saluzzi, partner and co-head of equity trading at Themis Trading.

The Dow Jones Industrial Average rose 11.89 points to 52,867.98, the S&P 500 fell 93.74 points, or 1.2%, to 7,663.43 and the Nasdaq Composite fell 694 points, or 2.6%, to 26,008.86.

MSCI's gauge of stocks across the globe fell 14.95 points to 1,122.93, its biggest one-day fall since June.

The pan-European STOXX 600 index fell 1.05%.

BRENT JUMPS ON ATTACKS

Houthi attacks in Saudi Arabia raised concerns of further disruption to energy supplies from the Middle East, pushing Brent oil up about 4%. 

Brent futures rose $4.35, or 4%, to settle at $113.17 a barrel, while US West Texas Intermediate crude rose $2.32, or 2.4%, to settle at $99.47.

Fragile equity markets also boosted the yen, while the dollar rose against the euro.

The Japanese yen strengthened 0.75% to 156.96 per dollar. The euro was down 0.09% at $1.1222.

CONCERNS CONTINUE FOR FRANCE

French markets were again hit on concerns over the country's strained public finances and ongoing street protests.

France's 10-year government bond yields surpassed equivalent US Treasuries for the first time since 2013, reflecting growing over France's deteriorating fiscal position and rising debt burden.

The benchmark 10-year yield was last up 6.5 basis points at 5.06%.

The premium investors demand to hold French government debt over safe-haven German Bunds widened to its highest in 15 years.

(Reporting by Caroline Valetkevitch in New York and Amanda Cooper in London; Additional reporting by Alun John and Jiaxing Li; Editing by Kate Mayberry, Shri Navaratnam, Susan Fenton, Elaine Hardcastle and Aurora Ellis)