The AI sector faced fresh challenges on Thursday, with Alphabet’s spending plans and Qualcomm’s disappointing outlook rattling investors. This resulted in the S&P 500 hitting its lowest mark in over two weeks, while the Nasdaq index fell to its lowest in more than two months.
During midday trading, the Dow Jones Industrial Average dropped nearly 400 points, translating to a 0.8% decline, settling at $49,113.
The S&P 500 experienced a 0.9% decrease, and the Nasdaq tumbled by 230 points, a drop of 1%.
All three main indexes were down as of Thursday. The Nasdaq reached a level it hadn’t been at for over two months.
Alphabet’s shares dipped over 3% after the parent company of Google announced it would double its capital spending this year, indicating a more aggressive strategy in the AI race.
Qualcomm’s stock fell by 8.2%, following announcements that its second-quarter earnings would likely fall below expectations.
This negative momentum affected major tech firms, with Microsoft and Tesla also seeing declines of 3.4% and 3.7%, respectively.
Big Tech is projected to invest more than $500 billion this year, raising concerns about inflated valuations and when these companies will start turning profits.
Concerns were amplified by Microsoft’s financial results, prompting traders to shift away from pricier tech stocks to more affordable options.
The CBOE Volatility Index, which gauges market fear, rose by 3.8 points to 20.49, marking its highest point in two months.
Amazon, included in the group of dominant tech stocks, witnessed a 4.3% decline ahead of its earnings report scheduled for after-market.
“Last year, AI was a big draw for investors, but now it seems more like a cautionary tale. People are realizing that while AI can benefit some companies, it might negatively impact others, particularly in software,” remarked Melissa Brown, managing director of investment decision research at SimCorp.
“The earnings reports didn’t meet investor expectations, which triggered the sell-off,” she added.
Stocks in software and data services, like ServiceNow and Salesforce, dropped by 5% and 4%, respectively.
This already challenging week for these sectors worsened as investors worried that rapidly advancing AI technology could reduce the demand for traditional software, impacting growth prospects across the board.
In the current risk-averse environment, both silver and gold continued to decline, with silver down around 13%, highlighting a trend after rebounding from sharp drops in previous days. Bitcoin also fell below $70,000.
Traders became more cautious with high-priced AI stocks, while a shift towards undervalued, less recognized companies was gaining traction. The S&P 600 Small-Cap Index, S&P 500 Value Index, and S&P 400 Mid-Cap Index were all seeing upward movement during the week, in contrast to the S&P 500, which was on track for over a 2% drop.
The consumer staples sector, often viewed as a safe haven, was the only segment of the index’s 11 sectors recording positive trades.
In terms of earnings, Snap exceeded revenue expectations this quarter, resulting in an 11% increase in its stock price.
Conversely, shares of Estée Lauder dropped by 21% after it failed to meet full-year earnings expectations. Tapestry’s stock rose by 8% after it raised its profit forecast for the year, while Hershey’s shares increased by 8.8% following a positive full-year profit outlook.
Additionally, the number of new unemployment claims filed by Americans for the week ending January 31 was higher than anticipated, while job openings in December reached their lowest level in over five years.
