Alphabet faces record after-earnings loss, weighing down Nasdaq futures

Hello, this is Leonie Kidd from today’s Morning Squawk.

There are more pains in certain parts of the AI ​​trade.

While AI chat and agents are making inroads into Google search in a way that investors can’t ignore, NeoCloud is back in the red as Microsoft’s capital spending declines.

Nasdaq futures have fallen sharply ahead of Amazon’s earnings report later in the day.

It will be a nerve-wracking day for Alphabet, with its stock price down more than 10% in pre-market trading.

Note this: If the stock declines by more than 9.77% in today’s trading, it would be the worst post-earnings reaction ever.

CNBC’s Robert Hamm crunched the numbers and found that the report was the first double miss on both EPS and revenue since Q4 2022.

Search is one of the key concerns. Investors are worried that AI chat and agents will start taking a larger share of Google’s search volume.

“This could be the quarter we feared,” Davidson Attorney Gil Luria told CNBC’s Mackenzie Sigalos after Search missed revenue estimates for the second straight quarter.

Why it matters: Search’s high-margin model gives Alphabet significant financial leverage as technology companies spend millions building out AI infrastructure. All in the cloud…: Google Cloud’s revenue more than doubled, and Google’s CFO described TPU systems as a “key contributor.”

This is a positive outlook for Microsoft. Shares rose in pre-market trading after Azure grew 48% to become the company’s largest single business.

Satya Nadella’s group also forecast second-quarter sales of up to $97 billion, well above consensus estimates.

The group’s capital spending outlook for the year fell to $170 billion.

Why it’s good: Investors have welcomed the easing in capital spending, and CFO Amy Hood said some third-party data center capacity lags could reduce spending.

However, Microsoft’s lower-than-expected capital expenditures are having a negative impact on Neocloud.

Coreweave, Nebius, and IREN stock prices are all under pressure in pre-market trading.

Why it matters: Microsoft is the largest customer for both Coreweave and Nebius, increasing its reliance on neocloud companies for capacity.

Also keep an eye out for cybersecurity stocks that are trading significantly lower pre-market.

cloud strike and palto alto networks While it has fallen more than 6%, Z scaler and Rubrik are also discounted by a similar amount.

What’s behind this move: The catalyst is Fortinet. Shares fell 25% after third-quarter profit margins were slightly lower than expected.

Next, Amazon will report after the bell today.

Analysts expect free cash flow to be negative in another quarter. This represents a capital investment of $5.8 billion

Analysis: Jefferies is keeping a close eye on cloud growth, says “the acceleration of AWS is far from over,” and says the stock is attractive as retail continues to perform surprisingly well even as consumer sentiment has become more cautious. Historical guidance: According to Bespoke, Amazon’s sales and bottom line exceeded expectations 72% of the time and 66% of the time, respectively.

Looking at the bigger picture, CNBC estimates that the Magnificent Seven no longer trades as a monolith, urging investors to be more discerning in picking the market’s biggest stocks, rather than viewing them as a single trade.

Analysis: Read here to learn more about how these correlations break down. Insight: Real Macro’s Jeff Currie told CNBC’s “Squawk Box Europe” earlier this week that the market is starting to take notice of “revenge of the old economy” trades. That video can be seen here.

2026 was the most expensive election cycle in history. With just five days left until Election Day, more than $11.3 billion has been spent so far, according to data from AdImpact.

CNBC’s Megan Casella looks at how political parties are spending their big money, and which sleeper stocks are getting a surprising amount of advertising spending.

Meanwhile, CNBC’s Garrett Downs has exclusive access to the Bank of North Dakota. It is the only nationally owned bank in the United States, and the idea is of particular interest to Democrats.

As part of this rare behind-the-scenes access, find out how banks are brokering deals that could support data center expansion.

—CNBC’s Robert Hamm, Mackenzie Cigarros, Kate Rooney, Isabel O’Brien, Jordan Nove, Priyanka Salve, Garrett Downs and Megan Casella contributed to this report.

John Meloy edited this version.