US stocks: Wall Street ends sharply down as AI worries weigh

WALL Street ended sharply lower on Thursday, with the Nasdaq dragged to its lowest since November by losses in Microsoft, Amazon and other tech heavyweights after Alphabet said it could double capital spending on AI in the race to dominate the emerging technology.

Shares of Alphabet fell 0.55 per cent after the Google parent said it plans as much as US$185 billion in capex in 2026. Together, it and its Big Tech rivals are expected to collectively shell out more than US$500 billion on AI this year.

Adding to recent losses, Microsoft dropped 5 per cent, Palantir lost 6.8 per cent and Oracle fell 7 per cent.

Amazon lost 4.4 per cent during regular trading and then tumbled another 10 per cent after the closing bell, joining its Big Tech peers in projecting massive capital expenditures in 2026. It was the latest sign that tech companies will not hit the brakes anytime soon on hefty AI investments.

Shares of chipmaker Nvidia, which stands to benefit from increased industry spending on AI, declined 1.4 per cent.

Investors in recent months have grown more wary of heavy spending on AI, awaiting stronger signs those investments are actually boosting revenue and profits.

“This is the first time we’ve seen the large-cap tech companies -- the Microsofts and the Alphabets and the Amazons -- go through a really large capex cycle ... and we’re seeing this volatility about whether this investment will translate, ultimately, into results,” said Tom Hainlin, an investment strategist at US Bank Wealth Management in Minneapolis.

Investors this week have also worried that rapidly improving AI tools could eat into demand for traditional software, squeezing profit margins across the sector. Software and data services stocks added to recent losses, with ServiceNow down 7.6 per cent and Salesforce losing almost 5 per cent.

The S&P 500 software and services index fell 4.6 per cent, down for a seventh straight session.

SEE ALSO

Wall Street opens lower on anxiety over Alphabet’s capex plans

“The AI trade which was the accelerant last year is perhaps the extinguisher this year with people realising 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.

Qualcomm slid 8.5 per cent after forecasting second-quarter revenue and profit below estimates.

The CBOE volatility index, Wall Street’s “fear gauge,” briefly hit the highest in over two months.

As traders dialed back exposure to pricey AI stocks, the market’s rotation into relatively cheaper stocks gained steam in recent days.

The S&P 500 value index dipped 0.9 per cent, but remained in positive territory for the week. The S&P 500 growth index was down more than 4 per cent for the week.

The S&P 500 declined 1.23 per cent to end the session at 6,798.40 points. The Nasdaq declined 1.59 per cent to 22,540.59 points, while the Dow Jones Industrial Average declined 1.20 per cent to 48,908.72 points.

Nine of the 11 S&P 500 sector indexes declined, led lower by materials, down 2.5 per cent, followed by a 2.59 per cent loss in consumer discretionary.

Snap topped fourth-quarter revenue estimates, but its shares declined more than 13 per cent.

Estee Lauder shares fell 19 per cent as the Clinique owner forecast annual results below estimates. Fashion company Tapestry rose 10 per cent after raising its annual profit forecast, while Hershey climbed 9 per cent 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.

Declining stocks outnumbered rising ones within the S&P 500 by a 1.8-to-one ratio.

The S&P 500 posted 44 new highs and 10 new lows; the Nasdaq recorded 113 new highs and 425 new lows. REUTERS