Wall Street falls as oil surge stokes inflation fears, big tech earnings loom

US stocks closed lower across the board Wednesday as a sharp rise in crude oil prices fanned inflation concerns and investors turned cautious ahead of earnings reports from major technology companies.

The Dow Jones Industrial Average edged down 6.06 points, or 0.01 percent, to close at 52,218.58 on the New York Stock Exchange. The S&P 500 fell 10.24 points, or 0.14 percent, to 7,498.96, while the tech-heavy Nasdaq Composite dropped 146.30 points, or 0.57 percent, to 25,690.90.

Markets were subdued ahead of second-quarter earnings due after the closing bell from Alphabet, Google's parent company, and Tesla. Skepticism remained high over whether heavy AI investment and large-scale capital expenditure would translate into meaningful improvements in profitability.

After the close, Alphabet reported second-quarter sales of $119.8 billion, topping market expectations. However, its free cash flow turned negative as the company ramped up spending on AI infrastructure.

Tesla also beat revenue forecasts, but its earnings per share fell well short of estimates. Surging investment in robotaxi services and AI infrastructure pushed free cash flow to negative $1.09 billion, swinging to a deficit.

Among individual stocks, server maker Super Micro Computer surged 19.84 percent after raising its earnings outlook and reporting a strong order backlog, reflecting continued optimism over AI server demand. Nvidia rose 2.30 percent on the same sentiment.

SK Hynix's American depositary receipts fell 3.88 percent. Seo Sang-young, a managing director at Mirae Asset Securities, said the ADRs declined after the company issued a disclosure denying rumors that it would acquire Intel's Ohio factory, a denial that had already sent its shares lower in the Korean market.

Mark Malek, chief investment officer at Siebert Financial, said AI optimism remains intact but the burden of proof has now shifted to management. "Future earnings calls will focus more on return on invested capital than on AI-related ambitions," he said.

Escalating geopolitical tensions in the Middle East also weighed on investor sentiment. As the standoff between the United States and Iran intensified, international oil prices rose for a fourth consecutive session.

West Texas Intermediate crude for September delivery settled at $86.83 per barrel, up 2.95 percent from the previous session. Brent crude for September delivery surged 3.36 percent to close at $94.07 per barrel.

The oil-driven inflation concerns pushed US Treasury yields higher. The 10-year yield rose 3 basis points to 4.657 percent, while the 2-year yield climbed 4 basis points to 4.301 percent.

The moves heightened market wariness over a possible benchmark interest rate hike ahead of next week's Federal Open Market Committee meeting.

According to the CME FedWatch tool, the probability of the Federal Reserve raising its benchmark interest rate at its July 28-29 monetary policy meeting climbed from about 10 percent on July 16 to around 34 percent Wednesday afternoon.