Futures point to a subdued open with a knife-edge rate decision from Kevin Warsh due at 2 p.m. ET, and Microsoft and Meta earnings set to test whether the AI spending boom is paying off

U.S. stock futures pointed to a subdued open on Wednesday as investors waited on the Federal Reserve's interest rate decision, with semiconductor shares sliding again and Middle East tensions adding to the unease ahead of a heavy run of Big Tech earnings.

By 8:35 a.m. ET, Dow futures were down 321 points, or 0.61%. S&P 500 futures had slipped 2.5 points, or 0.03%, while Nasdaq 100 futures were off 34.5 points, or 0.12%.

The caution caps a jittery month. Investors have begun to question how long the artificial intelligence spending boom can last after signs that large U.S. companies are deepening a web of AI-linked investments while pouring billions into the technology at the cost of free cash flow.

Chip stocks lead the retreat

The pressure is heaviest in semiconductors. A selloff that began in Asia rolled through Europe on Wednesday after South Korean chipmaker SK Hynix reported strong quarterly earnings that still fell short of lofty investor expectations. Its U.S.-listed shares dipped 1.6% before the bell.

Other chip names traded erratically. Nvidia was flat, Intel edged up 0.7%, Applied Materials dropped 3.2% and Sandisk slipped 1.2%.

The wobble has dragged the Nasdaq to a three-month low and pushed investors toward steadier corners of the market such as consumer staples and healthcare. The rotation has run hard enough that the blue-chip Dow now sits at a two-week high, and the S&P 500 equal-weighted index closed at a record on Tuesday.

"The pressure is shifting from spending plans to returns on investment," said Gina Martin Adams, chief market strategist at HB Wealth. She said investors want evidence that AI capital spending is generating revenue now while also strengthening the growth outlook.

Competition from China sharpens the worry. Chinese firms are pushing hard in the race to build advanced chips and are rolling out cheaper AI models that undercut U.S. rivals.

The Fed takes center stage

The main event arrives at 2:00 p.m. ET, when the Fed delivers a verdict that markets read as close to a coin toss. Traders put the odds of a rate hike at 39.4%, according to LSEG data, after a report showed price pressures eased the previous month. Even so, they are betting rates climb by at least 25 basis points before the year is out.

The central bank has kept its benchmark rate in a 3.50% to 3.75% range all year while trying to balance sticky inflation against a cooling economy. June's inflation reading came in softer, helped by lower energy prices during a brief lull in the war with Iran. That relief now looks fragile.

Crude jumped about 7% to $89.94 a barrel after President Donald Trump said the United States would respond to Iran's attacks in Jordan. A fresh climb in oil threatens to reheat inflation and strengthen the case for tighter policy.

Wednesday's decision is only the second for Kevin Warsh since he replaced Jerome Powell as Fed chair, and he has signaled he will give markets little forward guidance. That silence has left Wall Street guessing. Warsh has told lawmakers he has no tolerance for stubborn inflation and intends to drive it back to the 2% target.

Investors will study his tone in the post-decision news conference for any hint of the path ahead, though he has made clear he would rather not tie the central bank's hands in advance.

Earnings put AI spending on trial

The week's corporate results carry unusual weight. Microsoft and Meta report after Wednesday's close, with Amazon and Apple due later in the week. Traders want proof that the companies' enormous AI outlays are starting to show up in profits. Shares of the four struggled for direction in premarket trading.

The early bright spots sat elsewhere. Seagate Technology climbed 4.9% after the data-storage maker forecast quarterly results above estimates. KLA Corp guided to stronger-than-expected first-quarter revenue, yet its shares fell 9% as investors held out for more.

Outside tech, Ford Motor rose 5.1% after raising its annual profit outlook for the second time this year. Procter & Gamble fell 2.7% after forecasting slower revenue growth in fiscal 2027.

A resilient earnings season

For all the anxiety over stretched valuations, the wider results season has held up. Of the 169 S&P 500 companies that had reported by Wednesday, 85.2% beat expectations, according to LSEG-compiled data. In a typical quarter, 68% manage that.