US STOCKS-Nasdaq falls as Alphabet set for record loss amid AI spending woes

By Shashwat Chauhan and Utkarsh Hathi

Oct 29 (Reuters) - The tech-heavy Nasdaq fell more than 1% on Thursday as Alphabet's results rekindled worries about ballooning AI costs, outweighing strength in other sectors, including financials and healthcare, as earnings continued to dominate investor focus.

Alphabet GOOGL.O shares skid 11.7%, and were set for their steepest one-day fall on record, after the company reported disappointing search advertising results and a surge in cash burn as AI-related spending accelerated.

The Google parent is on track to lose more than $464 billion in market value, accounting for most of the over $500 billion the Nasdaq-100 .NDX was set to erase if current losses hold.

Microsoft MSFT.O fell 1.5% following media reports the company is planning to raise at least $25 billion through a bond sale. The company on Wednesday delivered a big cash-flow beat and forecast strong cloud growth.

"The factors that are at play that's creating these manic depressive sentiment swings is you have an ecosystem around the AI buildout that is increasingly debt financed," said Trevor Slaven, global head of asset allocation at Barings.

"(While) it in many ways grows the potential economic profits over time... it also creates more leverage and just creates a bit more risk in the system as well."

Investor enthusiasm for AI trade has been tempered this month by worries that debt-fueled spending will be harder to justify as borrowing costs climb. Anthropic's ANT.O disclosure of its US IPO filing on Monday offered a short-lived reprieve, before those fears resurfaced.

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The Philadelphia SE Semiconductor index .SOX was down 0.9%, set to snap a four-day winning streak. Other megacaps were mixed, with Meta META.O and Apple AAPL.O rising, while Amazon.com AMZN.O dropped 2.9% ahead of its quarterly earnings after markets close.

At 11:49 a.m. ET, the Dow Jones Industrial Average .DJI fell 182.81 points, or 0.35%, to 52,292.29. The S&P 500 .SPX lost 24.46 points, or 0.32%, to 7,719.52, while the Nasdaq Composite .IXIC shed 319.78 points, or 1.20%, to 26,230.07.

Despite heavy tech-related losses, market breadth was strong as advancing issues outnumbered decliners by a 1.97-to-1 ratio on the NYSE and by 1.5-to-1 on the Nasdaq.

Eight of the 11 S&P 500 sectors were trading higher, with healthcare .SPXHC and financials .SPSY leading the gains.

Drugmaker Eli Lilly LLY.N climbed more than 6% to a record high after forecasting annual revenue above Wall Street estimate. Mastercard MA.N rose 4.2% after the payments processing firm beat third-quarter profit estimates.

Meanwhile, data on Thursday showed that US inflation accelerated in September. Money market data showed traders held onto their bets of the Federal Reserve hiking interest rates in December after it held rates steady on Wednesday. A separate reading showed US economy grew at its fastest pace in a year in the third quarter.

Among other stocks, Caterpillar CAT.N dropped 8% after the company kept its annual sales forecast unchanged, raising questions over how long the data-center boom can drive growth for power-generation equipment.

Software stocks were broadly weak as Fortinet FTNT.O and ServiceNow NOW.N dropped more than 20% each after their quarterly results.

Marvell Technology MRVL.O slumped 11.6% after media reports said the company was in advanced talks to buy data-center optics maker Lumentum Holdings LITE.O. Lumentum shares rose 3.5%.

The S&P 500 posted 17 new 52-week highs and six new lows, while the Nasdaq Composite recorded 73 new highs and 104 new lows.