Tech Spending, Mideast Tensions Pressure Markets as Oil Nears $98

Investor concerns over rising capital expenditures in the technology sector and escalating geopolitical tensions in the Middle East weighed on U.S. stock futures Thursday. Despite a strong earnings report, Alphabet shares fell in pre-market trading after the company boosted its spending forecast, while rising oil prices stoked fresh inflation fears.

Tech Giants' Spending Spree

Alphabet reported that its key cloud business grew by more than 80%, beating analyst expectations. However, the company also raised its capital expenditure estimates, signaling that AI-linked investments for the year are now projected to exceed $200 billion. The heavy spending plan, coupled with reported delays in its Gemini AI model, sent Alphabet's stock down 3% in pre-market activity.

This trend of high spending impacting investor sentiment was also seen with Tesla, which fell 4% on Wednesday after reporting its first negative free cash flow in over two years. The focus now shifts to Intel, which is scheduled to report its earnings later today, providing a further test for the U.S. chip sector.

Mixed Signals for Chipmakers

The surge in AI-related spending by U.S. tech giants provided a boost to some international markets. Chip-heavy South Korean stocks, for example, rallied more than 4% on the news. This suggests investors believe increased infrastructure investment will benefit semiconductor manufacturers.

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However, the outlook was less positive in Europe. Shares of chipmaker STMicroelectronics plummeted 14% after the company's earnings slightly missed expectations. The drop weighed on the broader European technology sector and highlighted regional disparities in the industry's performance.

Oil Prices Surge on Geopolitical Risk

Adding to market headwinds, Brent crude oil futures climbed toward $98 per barrel, a six-week high, amid intensifying conflict in the Gulf. According to reports, Yemen's Houthi group targeted Saudi oil tankers, disrupting shipping routes in the Red Sea and pushing energy prices higher.

The resurgent oil price is reigniting inflation concerns among investors and central banks. In the bond market, short-term U.S. Treasury yields rose to their highest level in approximately 17 months. Markets are now pricing in the possibility of two additional interest rate hikes from the Federal Reserve within nine months and two from the European Central Bank by the end of the year.