US STOCKS-S&P 500, Nasdaq close down as Big Tech's soaring AI budgets trigger flight

There were 611 new highs and 176 new lows on the NYSE. On the Nasdaq, 2,067 stocks rose and 2,746 fell as declining issues outnumbered advancers by a 1.33-to-1 ratio.

The S&P 500 and the ‌technology-heavy Nasdaq closed lower on Thursday as investors were rattled by the latest earnings reports and worried about whether hefty spending on artificial intelligence would pay off for mega-cap tech companies. While the indexes recovered some losses by the end of the session, they were still weighed down by a weak technology sector. Microsoft was the biggest drag on the S&P 500. Its ⁠shares slumped 10% after the software giant's cloud revenue failed to impress and stoked fears the hefty outlays for its OpenAI alliance were not reaping returns fast enough. Other software stocks also tumbled with SAP's U.S.-listed shares sinking 15% after its cautious cloud outlook and ServiceNow shares ending down 9.9% after its earnings report added to the gloom.

"Microsoft disappointed and there are some genuine concerns that AI investments will eat the software companies' lunches," said John Praveen, managing director & Co-CIO, Paleo Leon in Princeton, New Jersey. Investors are trying ​to "reduce exposure to stocks and play it safe" against a backdrop of broader uncertainties including who the Federal Reserve's next chair will be and how many interest rate cuts it will make, according to Praveen who also cited political uncertainties ‍around Washington's stance in relation to Iran and Greenland and the potential for a U.S. government shutdown.

"There are all sorts of storm clouds in the background," he said. The Dow Jones Industrial Average managed to eke out a tiny gain late in the session, rising 55.96 points, or 0.11%, to 49,071.56. The S&P 500 closed well above its session low but still ended the day down 9.02 points, or 0.13%, at 6,969.01.

The Nasdaq Composite finished down 172.33 points, or 0.72%, at 23,685.12 after paring losses in the last half hour of trading. Software companies caught up in the selloff included Salesforce, down 6%, Oracle, off 2.2% and Adobe, ⁠down 2.6% while ‌cloud security firm Datadog dropped 8.8%.

For some software companies, such as ⁠ServiceNow and Salesforce, the fear is that "AI is going to disrupt their business a little bit," if AI can be used "to supplant some of their services," said Jay Hatfield, CEO and CIO of Infrastructure Capital Advisors in New York. "It doesn't really matter, what the reality is or isn't. Those stocks are ‍getting hit pretty hard," he said.

Following its after-the-bell report, late trading in Apple Inc shares was choppy with a gain of less than 1% after it beat quarterly revenue estimates

on a sharp rebound in China while CEO Tim Cook told Reuters that demand for its latest iPhone ​was "staggering." Among other megacap companies,

Tesla shares lost 3.5% after the electric-vehicle maker outlined plans to more than double capital expenditures to a record level.

Among the S&P 500's 11 major industry sectors, technology was the biggest laggard, falling 1.9%. Communications services, ⁠up 2.9%, was the biggest gainer however as Facebook parent

Meta rallied 10.4%. Bucking the trend among megacaps, the social media giant paired an upbeat revenue forecast with a 73% jump in this year's capex budget.

In other positive news, technology bellwether IBM shares rose 5% after its fourth-quarter earnings beat estimates. The energy index rose 1% ⁠on the back of surging oil prices, with Brent crude futures hitting a near six-month high on rising concerns about a possible U.S. military attack on Iran. After other notable earnings, Caterpillar shares rose 3.4% after it posted a higher profit while Mastercard climbed 4.3% after it beat Wall Street profit expectations for the fourth-quarter and said it will lay off about 4% of its global workforce to refocus investments in different areas. Defense contractor Lockheed Martin shares rallied 4% after it forecast 2026 earnings ⁠above Wall Street expectations.

Southwest Airlines shares soared 18.7% after the carrier forecast a stronger-than-expected annual profit, making it the leader among S&P 500 percentage gainers. Among other stock moves, rare-earth miners slid following a report that President Donald Trump's administration would ⁠step back from critical mineral price floors.

USA Rare Earth fell along ‌with MP Materials, Critical Metals and United States Antimony. Advancing issues outnumbered decliners by a 1.19-to-1 ratio on the NYSE. There were 611 new highs and 176 new lows on the NYSE.

On the Nasdaq, 2,067 stocks rose and 2,746 fell as declining issues outnumbered advancers by a 1.33-to-1 ratio. The S&P 500 posted 51 new 52-week highs and 20 new lows. On U.S. ⁠exchanges 23.36 billion shares changed hands, well above the 18.83 billion 20-day moving average.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)