Major US stock indexes closed lower on Thursday after Microsoft and Meta Platforms highlighted growing artificial intelligence costs that could hit their earnings, curbing enthusiasm for megacaps that have fueled the market rally this year.

Shares of Facebook-owner Meta Platforms and Microsoft fell, despite both companies beating earnings estimates in results reported after the bell on Wednesday.

Other so-called Magnificent Seven megacap technology stocks also slipped. Amazon and Apple dropped ahead of their quarterly results. Shares of Alphabet, which reported on Tuesday, also fell.

"You had three of the Magnificent Seven all say they basically have open-ended budgets for AI spend and investors don't like to hear that," said Carol Schleif, chief investment officer at BMO Family Office.

"The intermediate and longer-term implications of this buildout are really important for US long-term growth and long-term productivity. ... In the short run, investors are asking where's the profit from it?"

Microsoft and Meta both said their capital expenses were growing due to AI investments, which could reduce profitability.

The Dow fell 0.9 percent, to finish at 41,763. The S&P lost 1.9 percent, to 5,705, and the Nasdaq fell 2.8 percent, to 18,095.

The Personal Consumption Expenditures price index, the Federal Reserve's preferred inflation metric, rose 0.2 percent in September, in line with economists' expectations. However, the core figure was 2.7 percent year-over-year, slightly above the 2.6 percent forecast, while consumer spending increased a little more than expected.

After the data, traders stuck to bets for a 25-basis-point rate reduction in the Fed's November meeting.

"We do expect them to cut by a quarter (percentage point) next week because there is nothing in the data this week that should throw them off of that," Schleif said. (Reuters)