Wall Street closed sharply lower on Tuesday, weighed down by renewed anxiety over artificial intelligence intensifying competition for software companies, while investors stayed cautious ahead of earnings from Alphabet and Amazon later this week.
Technology stocks bore the brunt of the sell-off, with AI leaders Nvidia and Microsoft each sliding nearly 3%.
Alphabet fell 1.2% ahead of its results due on Wednesday, while Amazon lost 1.8% before its earnings release on Thursday.
The pressure reflected growing concerns that AI advancements could erode margins across the software sector.
Those worries were amplified by recent developments such as Anthropic’s launch of a legal tool for its Claude AI chatbot, which sharpened fears of disruption across the industry. “We’re looking at a lot of software names that are seen as companies that may well be disrupted when we start to see the advancement of artificial intelligence. We’re seeing a lot of software companies across the spectrum get hit,” said Art Hogan, chief market strategist at B. Riley Wealth.
Several major software names saw steep declines. Salesforce, Datadog and Adobe dropped about 7%, while Synopsys and Atlassian slid roughly 8%.
Intuit suffered the heaviest fall, plunging 11%. In contrast, AI data firm Palantir bucked the broader trend, rallying nearly 7% after posting strong quarterly results late on Monday.
The S&P 500 software and services index fell 3.8%, marking its fifth straight day of losses.
According to John Campbell, senior portfolio manager at Allspring Global Investments, stretched valuations are adding to market unease.
“We’ve got an expensive market and expectations are really high. Many areas, especially around AI, are priced for perfection. That’s just got us in a skittish environment,” he said.
Beyond technology, healthcare stocks also came under pressure after Novo Nordisk warned of a sharp drop in annual sales, sending its US-listed shares tumbling nearly 15%. Eli Lilly slipped 3.9%, while Structure Therapeutics fell 6.75%.
There were a few bright spots.
Walmart climbed about 3%, becoming the first physical retailer to reach a US$1 trillion market capitalisation.
PepsiCo rose 4.9% after announcing price cuts on core brands such as Lay’s and Doritos.
Merck gained 2.2% following its quarterly results, though Pfizer slipped 3.3% despite beating profit estimates.
Elsewhere, Advanced Micro Devices declined 1.7% ahead of its earnings announcement after the closing bell.
Walt Disney edged down 0.2% after naming theme parks chief Josh D’Amaro as chief executive, ending months of succession uncertainty.
PayPal slumped 20% after forecasting 2026 profit below market expectations.
By the close, the S&P 500 fell 0.84% to 6,917.81 points, while the Nasdaq dropped 1.43% to 23,255.19 points.
The Dow Jones Industrial Average eased 0.34% to 49,240.99 points. Despite the overall decline, advancing stocks outnumbered decliners on the S&P 500 by a ratio of 1.2 to one.
Trading activity was heavy, with 23.5 billion shares changing hands, well above the 20-session average of 19.6 billion.
Six of the 11 S&P 500 sectors ended lower, led by information technology, which slid 2.17%, followed by a 1.28% drop in communication services.
Attention is now turning to a packed earnings calendar, with around a quarter of S&P 500 companies due to report this week.
Analysts expect earnings growth of nearly 11% for the December quarter, up from about 9% estimated at the start of January, according to LSEG data.
On the political front, legislation aimed at ending a US government shutdown narrowly cleared a procedural vote in the House of Representatives, paving the way for a final vote later in the day.
The partial shutdown has delayed the release of key labour market data, including jobs figures due on Friday and the JOLTS report that had been scheduled for Tuesday.
The session saw the S&P 500 notch 81 new highs and 28 new lows, while the Nasdaq recorded 202 new highs against 311 new lows.
Reuters
