US markets tumbled on Wednesday following a bruising investor response to earnings from Tesla and Google parent Alphabet that added to worries about tech heavyweight equity valuations.

The Nasdaq Composite Index finished down 3.6 percent, or more than 650 points, at 17,342.41.

The Dow Jones Industrial Average fell 1.3 percent to 39,853.87, and the S&P 500 dropped 2.3 percent to 5,427.13.

The downbeat reaction to results "feeds some angst about the mega cap stocks not being able to deliver stock performance," said Briefing.com analyst Patrick O'Hare, adding that even strong results next week from Apple, Amazon and other tech giants may not be received well by Wall Street.

"It's a general bid to reduce exposure predicated on the idea that these stocks have run up a long way in a short time," O'Hare said.

Tesla dropped 12.3 percent after missing earnings estimates as CEO Elon Musk touted progress on robotic and artificial intelligence technology. Analysts said the results added to worries about weakening profit margins amid ebbing demand for Tesla's electric vehicles.

Meanwhile Alphabet fell 5.0 percent after topping analyst estimates in general but reporting disappointing figures for its YouTube business.

Among economic reports, the sales rate of new family homes in the United States dipped in June, missing analyst estimates amid still elevated interest rates.

Analysts expect that a reduction in the Federal Reserve's benchmark lending rate later this year will help mortgage rates decline further, boosting home sales.

Besides corporate earnings, Thursday's calendar includes the US government estimate for second-quarter growth. (AFP)