U.S. stock futures steady as AI spending, Fed rate concerns weigh

U.S. stock futures held nearly flat in Asian trading on Friday, with S&P 500 Futures edging down 0.1% to 7,802.00 points. Nasdaq 100 Futures rose 0.1% to 30,173.25 points, while Dow Jones Futures climbed 0.1% to 52,496.0 points by 01:55 ET (05:55 GMT). The stability followed a regular session in which the Dow Jones Industrial Average climbed 1.1% and the S&P 500 gained 0.3%, driven by rotation into defensive sectors like healthcare and consumer goods.

Investors remained cautious about technology valuations, questioning whether robust demand for artificial intelligence justifies the heavy capital expenditure on data centers, chips, and cloud infrastructure. This scrutiny hit hardware suppliers hard on Thursday, as Nvidia (NASDAQ:NVDA) fell 1.8%. Server makers Dell Technologies (NYSE:DELL) and Hewlett Packard Enterprise (NYSE:HPE) saw shares decline by 6.9% and 7.1%, respectively. The Philadelphia Semiconductor Index dropped 0.9%, marking its seventh consecutive session of losses.

The pressure extends to infrastructure providers, with CoreWeave Inc (NASDAQ:CRWV) under scrutiny for its heavy borrowing and capital spending. Oracle (NYSE:ORCL) and other AI infrastructure companies also faced pressure as investors reassess the sustainability of computing capacity investments.

Inflation data added to the macroeconomic headwinds. U.S. producer prices rose more than expected in September, marking the largest increase in four and a half years. This followed a hotter-than-expected consumer price report on Wednesday, prompting a reassessment of the Federal Reserve's policy outlook. Despite the inflationary signals, Treasury yields retreated sharply on Thursday, with the benchmark 10-year yield falling to around 5.09%. This decline in borrowing costs eased some pressure on equity valuations.

According to CME Group's FedWatch tool, as reported by Reuters, markets priced in a 67% probability of a Fed rate increase by December. Federal Reserve Chair Kevin Warsh addressed these dynamics on Friday at the International Monetary Fund's annual meetings. He stated that persistent inflation remained a common challenge for global policymakers and noted that the global economy had shown greater resilience than expected amid geopolitical tensions.

Warsh confirmed that the Fed removed some monetary policy accommodation at its September meeting but declined to signal its next move. He also described AI as a potentially significant development that could boost productivity and economic growth over the medium term.