U.S. Futures Fall as Tech Earnings Stoke AI Spending Fears, Oil Tops $98

U.S. stock index futures declined Thursday morning as underwhelming quarterly reports from Alphabet and Tesla revived investor concerns over the high cost of artificial intelligence development, while a surge in oil prices fueled by Middle East tensions added to market pressure.

Big Tech Earnings Underwhelm

The first batch of earnings from the "Magnificent Seven" megacap companies failed to impress investors. Although Alphabet reported its strongest-ever quarter for cloud computing growth, its shares fell 3.6% in premarket trading as attention shifted to its higher spending plans. Tesla shares dropped 6% after the company reported negative free cash flow for the second quarter, its first in more than two years.

These results have intensified scrutiny on whether the massive capital expenditures required for AI are translating into profitable returns and can justify elevated stock valuations. "Alphabet is beginning to show that connection. Tesla still needs to prove that its ambitious projects can move from technological promise to commercial returns," said Lale Akoner, global market strategist at eToro, in a comment cited by Reuters.

Geopolitical Tensions Fuel Inflation Fears

Geopolitical risk resurfaced as a primary market driver, with Brent crude futures surging to $98 a barrel, their highest level since early June. According to reports, the price jump was linked to a widening conflict in the Middle East, specifically threats to shipping in the Red Sea from Iranian-aligned Houthis.

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The spike in energy costs reignited inflation concerns, pushing the interest-rate-sensitive 2-year Treasury yield to a 17-month high. This has shifted expectations for Federal Reserve policy ahead of its meeting next week.

Market Reaction and Fed Outlook

As of 6:51 a.m. ET, futures contracts tracking the major U.S. indices were broadly lower, with Nasdaq 100 E-minis leading the decline with a 0.28% drop. Dow and S&P 500 E-minis were both down approximately 0.27%.

In response to the inflation signals, traders have increased bets on a near-term interest rate hike. The probability of a 25-basis-point increase at the Fed’s July meeting has risen to 35%, up from 12% a week ago, according to CME’s FedWatch tool.

Other individual stocks showed mixed results. Defense contractor Lockheed Martin (LMT) gained 5.4% after lifting its 2026 forecast, while enterprise software firm ServiceNow (NOW) jumped 7% after raising its revenue outlook.