U.S. stock futures indicated a softer opening on Thursday, suggesting Wall Street could extend the previous session’s losses as investors react to a sharp decline in Broadcom shares and continue to monitor developments in the Middle East.
Technology stocks appeared set to lead the retreat, with Nasdaq 100 futures falling 1.2% ahead of the opening bell.
The pressure largely stemmed from Broadcom (NASDAQ:AVGO), whose shares tumbled 14.6% in premarket trading despite reporting fiscal second-quarter earnings that surpassed analyst expectations.
Broadcom’s Outlook Disappoints Investors
Although Broadcom delivered stronger-than-expected quarterly results, investors appeared focused on management’s decision not to raise its longer-term forecast for artificial intelligence chip sales.
Chief Executive Hock Tan maintained the company’s projection of $100 billion in AI semiconductor revenue, disappointing some investors who had anticipated a more ambitious outlook given the rapid expansion of AI infrastructure spending.
“Broadcom may have emerged as a key player in the booming AI infrastructure market, with a particular expertise in the custom chips increasingly being used by the likes of Alphabet and Meta,” said AJ Bell head of markets Dan Coatsworth.
He added, “However, just like its rival Nvidia, Broadcom is finding that meeting and even slightly beating forecasts is not enough when the market is holding it to such a high standard.”
The reaction highlighted the elevated expectations currently surrounding companies tied to the artificial intelligence investment cycle.
Falling Oil Prices Help Contain Market Weakness
Broader market losses were partially offset by a sharp decline in crude oil prices following diplomatic progress in the Middle East.
U.S. crude futures dropped more than 3% after Israel and Lebanon agreed to renew a ceasefire arrangement. The agreement remains dependent on Hezbollah ending attacks and withdrawing personnel from areas south of the Litani River.
The easing in oil prices helped reduce concerns about inflationary pressures and provided some support to risk sentiment.
Investors Await Key Employment Report
Market participants were also reluctant to make major positioning changes ahead of Friday’s closely watched U.S. employment report.
Ahead of the release, the Labor Department reported that initial jobless claims unexpectedly increased during the week ended May 30, indicating a slight softening in labour market conditions.
The jobs report is expected to provide important clues regarding the health of the U.S. economy and the future path of Federal Reserve policy.
Wall Street Ends Lower Amid Geopolitical Uncertainty
Stocks closed broadly lower on Wednesday after several sessions of gains, as investors assessed continued uncertainty surrounding negotiations between the United States and Iran.
The Dow Jones Industrial Average fell 620.72 points, or 1.2%, to finish at 50,687.07. The Nasdaq Composite declined 239.93 points, or 0.9%, to 26,853.98, while the S&P 500 lost 56.10 points, or 0.7%, ending at 7,553.68.
According to U.S. Central Command, American forces intercepted multiple Iranian ballistic missiles and drones before carrying out “self-defense” strikes on Qeshm Island in response to attempted attacks earlier in the week.
Those military developments contributed to a rise in oil prices during the previous session, although investors have generally remained resilient in recent weeks amid optimism over corporate earnings and economic growth.
“For now, risk appetite remains supported, but with stretched valuations and shifting monetary policy expectations, markets appear increasingly sensitive to any signs that the earnings and growth story may begin to soften,” said Daniela Hathorn, Senior Market Analyst at Capital.com.
Services Sector Growth Exceeds Expectations
On the economic front, fresh data from the Institute for Supply Management showed stronger-than-expected expansion in the U.S. services sector during May.
The ISM Services PMI rose to 54.5 from 53.6 in April, comfortably ahead of economists’ expectations of 53.7. A reading above 50 indicates expansion in activity.
Despite the positive economic data, software stocks experienced significant weakness, with the Dow Jones U.S. Software Index falling 4%.
Gold-related shares also came under pressure as bullion prices declined, sending the NYSE Arca Gold Bugs Index down 3.6%.
Losses were also recorded among telecommunications, airline and networking stocks, while gains in biotechnology, semiconductor and energy shares helped moderate the broader market decline.