Market Highlights: ASX to plunge after Wall Street crashes amid growing concerns over AI

The ASX 200 index is expected to drop 1.8pc at the open
Major US indexes fell sharply overnight, with the Nasdaq down 2.30pc
Mixed corporate earnings reports are raising concerns about AI investments

The ASX 200 index is expected to plunge when the market opens on Friday as US jobless claims rose, showing cracks in the labour market.

At 8am AEST, the ASX200 futures contract was pointing sharply lower by 1.8%.

Overnight, Wall Street dropped heavily. The S&P 500 closed the day down by 1.37%, the blue chips Dow Jones index tumbled by 1.21%, and the tech heavy Nasdaq crashed 2.30%.

There’s no really single explanation for the sudden turbulence, but various factors could be at play.

Corporate earnings reports so far are showing a mixed view of how US consumers are doing, and they’re raising questions about whether tech giants are getting their money’s worth from their big investments in AI.

“Part of the volatility is a narrative shift. Investors keep asking the data, ‘What have you done for me lately?’” Michael Kantrowitz at Piper Sandler told Bloomberg.

Amazon’s earnings report after last night’s close heightened that concern.

Amazon slid more than 5.3% after reporting weaker-than-expected revenue for Q2 and a disappointing forecast, with its cloud business performing well but its advertising unit falling short.

Apple, meanwhile, rose 1% as its Q3 earnings came in better than expected. Excitement over new AI features helped offset a drop in its key China market.

Despite a decline in iPhone sales, revenue rose 4.9% to US$85.78 billion, surpassing the US$84.53 billion estimate.

Snap Inc was dumped and dropped almost 20% in extended trading as the social media company reported weaker sales for Q2, and gave a lower-than-expected forecast for earnings.

DoorDash surged 13% after a higher-than-expected profit forecast for the current quarter, thanks to strong customer demand and growth in areas beyond just restaurant deliveries.

And Coinbase lifted 3% post-market after its profit and revenue doubled in the Q3, thanks to the rebound in cryptocurrencies this year.

Are AI investments paying off?

Alphabet and Microsoft recently reported their earnings, revealing mixed results amid a growing focus on AI.

Both companies, major players in the cloud market and AI development, showed strong revenues but faced a market reaction due to concerns about AI’s profitability.

Despite their robust earnings, investors were disappointed as neither company provided clear evidence of AI boosting profits significantly.

Both companies are heavily investing in AI and cloud infrastructure, but the immediate financial impact remains unclear.

While AI promises substantial long-term benefits, it looks like it requires expensive infrastructure and may take years to see significant profits.

Investors are beginning to doubt whether AI will deliver quick financial returns, leading to recent stock declines.

“Even if AI proves to be widely usable and the costs of operating it are lower than the benefits, it may still take some time before we see widespread adoption,” said Milad Azar, market analyst at XTB MENA.

“It looks like at least part of the investors are already starting to admit it, and because of that, the shares reacted negatively,” Azar added.

In other markets …

Gold price traded flattish at US$2,446.02 an ounce.

Oil prices were down by around 1%, with Brent crude now trading at US$79.96 a barrel.

The benchmark 10-year US Treasury yield tumbled by a further 5 basis points to 3.98%, its lowest level since February 1st, after a massive rush to the safety of US bonds overnight.

The Aussie dollar dropped by 0.74% to US64.97 cents.

The iron ore price climbed by 1.3% to US$102.25 a tonne.

Bitcoin meanwhile climbed by 1.23% in the past 24 hours to US$65,437 while Ethereum also jumped by 0.8% to US$3,201.

4 ASX small caps to watch today

IXUP (ASX:IXU)
IXUP has secured a major contract worth over $10m to provide a self-exclusion register for online gambling in Ontario, Canada. This contract, awarded by iGaming Ontario, marks IXUP’s entry into the North American market. It will run for five years with the possibility of three additional one-year extensions. The deal is expected to start generating cash flow for IXUP immediately and highlights the success of its partnership with IC360, formed in April.

NickelSearch (ASX:NIS)
NIS announced results from its regional Ultrafine Fraction (UFF) soil sampling program at its Carlingup Lithium-Nickel Project in WA, covering an area approximately 4km x 1km. The program has identified new, broad scale lithium, caesium, and tantalum, and exhibits peak lithium values of 190ppm Li (409 ppm Li2O).

GreenX (ASX:GRX)
GreenX has entered into an Earn-in Agreement through which it can earn 90% interest in Group 11 Exploration GmbH, a private German company which holds the Tannenberg Exploration license, and is highly prospective for sediment-hosted copper deposits.

Astral Resources (ASX:AAR)
Astral has announced strong assay results from its recent drilling at Kamperman, part of the Feysville Gold Project. The drilling program, which included 26 holes totaling 2,808 metres, produced impressive results from the first 23 holes. Notable findings include high-grade gold intersections such as 38 metres at 2.12 g/t, 34 metres at 2.24 g/t, and 19 metres at 3.32 g/t. The data will contribute to a new Mineral Resource Estimate expected in the September quarter.