The S&P 500 dropped to an over two-week low and the Nasdaq sank to its lowest level in more than two months on Thursday, as the AI theme came under renewed pressure after Alphabet’s spending plans and Qualcomm’s downbeat forecast rattled investors.
In midday trading, the Dow Jones Industrial Average plunged nearly 400 points, or 0.8%, to 49,113.
The S&P 500 lost 0.9%, and the Nasdaq dropped 230 points, or 1%.
Shares of Alphabet fell more than 3% after the Google parent said it would double its capital expenditure this year, signaling another aggressive push to strengthen its position in the AI race.
Qualcomm slid 8.2% after forecasting second-quarter revenue and profit below estimates.
The pressure spread across tech mega-caps, with Microsoft and Tesla down 3.4% and 3.7%.
Big Tech is expected to collectively funnel more than $500 billion into the buildout this year, reigniting questions about sky-high valuations and when returns will actually show up.
Those worries sharpened after Microsoft’s results, sending traders out of pricey tech and into cheaper pockets of the market.
The CBOE volatility index, Wall Street’s “fear gauge,” rose 3.8 points to 20.49, hitting an over two-month high.
Amazon, another “Magnificent 7” stock, dropped 4.3% ahead of results, due after the market close.
“The AI trade which was the accelerant last year is perhaps the extinguisher this year with people realizing that AI is going to help certain kinds of companies but it is also going to hurt, particularly software, for example,” said Melissa Brown, SimCorp’s managing director of investment decision research.
“Earnings were reported and not quite as good as investors had hoped for, that was a catalyst for a selloff.”
Software and data services stocks such as ServiceNow and Salesforce were down 5% and 4% respectively.
The declines deepened an already bruising week for the group, as investors fret that rapidly improving AI tools could start eating into demand for traditional software, and squeezing growth expectations across the sector.
The S&P 500 software and services index slid 3.2%, chalking up a seventh straight session in the red and wiping out about $830 billion in market value since January 28.
Amid risk-off sentiment, silver and gold resumed a slide, with the white metal plunging almost 13%, after rebounding in the last couple of days from a sharp drop. Bitcoin fell below the $70,000 mark.
As traders dialed back exposure to pricey AI stocks, the market’s rotation into cheaper, overlooked corners kept gathering steam. The S&P 600 small-cap index, the S&P 500 value index and the S&P 400 mid-cap index were all on track for weekly gains, even as the S&P 500 was staring at a drop of more than 2%.
Consumer staples, a defensive sector, was the only one of the index’s 11 sectors trading in the green.
On the earnings front, Snap topped fourth-quarter revenue estimates, lifting its shares 11%.
Estee Lauder shares fell 21% as the Clinique owner forecast annual results below estimates. Tapestry rose 8% after raising its annual profit forecast, while Hershey added 8.8% on a better-than-expected annual profit forecast.
The number of Americans filing new applications for unemployment increased more than expected for the week ended Jan. 31, while job openings dropped to the lowest level in more than five years in December.
