US STOCKS-Tech, software rout drags Wall St lower as markets seek returns on AI spending

U.S. stock indexes fell on Thursday on a renewed selloff in software and technology shares, while strong labor market data tempered expectations for a central bank rate cut.

Fears of AI disruption have roiled Wall Street this month, slamming sectors ‌including software, legal services and wealth management, with transport being the latest casualty. "The broader narrative within the market is what sectors and industries can increase productivity from AI investments, and on the flip side, what industries are going to be disrupted by AI," said Jack Herr, primary investment analyst at GuideStone Funds.

"We see this as a 'prove it' year for AI. ‌We need to start seeing some return on investments." Software and brokerage stocks fell sharply, with the S&P 500 software index down 2.7%, giving up almost all its gains since ‌bouncing back from last week's drubbing.

Atlassian and Adobe were down more than 2% each. Intuit, Crowdstrike and Datadog fell between 1% and 3%. The Dow Jones Transport Average lost 5.4%, with CH Robinson falling 12%. Old Dominion and J.B. Hunt Transport lost 4.3% and 8.6%, respectively.

The Philadelphia SE Semiconductor index was down 1.7%, with Intel and Advanced Micro Devices slipping around 2.5% each. Marvell Technology, Broadcom and Oracle lost between 2.5% and 4%. All "Magnificent ⁠7" stocks ​posted declines, with Apple and Amazon falling 3.7% ⁠and 3%, respectively.

Recent Big Tech results have revived investor worries about ambitious capex this year, with Amazon, Google , Meta and Microsoft collectively expected to spend around $650 billion in the race for AI dominance. At 11:45 a.m. the ⁠Dow Jones Industrial Average fell 520.09 points, or 1.04%, to 49,601.31, the S&P 500 lost 72.75 points, or 1.05%, to 6,870.44, and the Nasdaq Composite lost 357.35 points, or 1.55%, to 22,709.12.

Corporate results ​stayed front and center. AppLovin shares fell 18% after its fourth-quarter results. The marketing platform has lost nearly a third of its value in the first ⁠six weeks of the year due to intense competition. Equinix jumped 11% after the largest data-center operator forecast annual revenue above estimates on Wednesday, betting on strong AI-linked demand. It boosted the S&P 500 real estate index 1.1%.

Cisco ⁠slumped ​11% after the networking equipment provider posted quarterly adjusted gross margin below estimates. Personal-computer makers fell after China's Lenovo warned of shipment pressure due to a memory-chip shortage. HP and Dell Technologies lost 6.4% and 9.2%, respectively.

Data released on Thursday showed weekly jobless claims decreased less than expected last week, another sign of a stable labor market. The crucial ⁠Consumer Price Index inflation report for January is due on Friday. At least one rate cut is still expected in June, but chances of the U.S. Federal Reserve holding ⁠borrowing costs steady have risen to almost 40%, ⁠from 24.8% earlier, after Wednesday's jobs data, according to CME Group's FedWatch tool.

Declining issues outnumbered advancers by a 1.84-to-1 ratio on the NYSE, and by a 2.96-to-1 ratio on the Nasdaq. The S&P 500 posted 97 new 52-week highs and 26 new ‌lows, while the Nasdaq Composite recorded ‌105 new highs and 221 new lows.