Wall Street closed sharply lower on Tuesday as investors worried that AI would create more competition for software makers, making them wary ahead of quarterly reports from Alphabet and Amazon later this week.
AI giants Nvidia and Microsoft each fell about 3%. Alphabet fell 1.2% ahead of Wednesday’s announcement, and Amazon fell 1.8% ahead of Thursday’s announcement.
Investors have become increasingly picky about AI stocks in recent months, looking for companies that are generating tangible returns from big investments in new technology.
Wall Street’s attention on Tuesday turned to technology companies that could face increased competition and lower profit margins as a result of AI. One of the catalysts for these concerns was Anthropic’s launch of legal tools for its Claude AI chatbot.
“We’re looking at a lot of software companies that are considered potential disruptors as we start to see advances in artificial intelligence. We’re seeing a lot of software companies across all sectors hurt,” said Art Hogan, chief market strategist at B. Riley Wealth.
Salesforce, Datadog, and Adobe were down about 7%, Synopsys and Atlassian were down about 8%, and Intuit was down 11%.
AI data company Palantir bucked the trend, rising nearly 7% late Monday after strong quarterly results. The S&P 500 Software and Services Index fell 3.8%, falling for the fifth day in a row.
“Our market is expensive and expectations are very high. Many areas, especially around AI, are priced for perfection, so we’re just in a tough environment,” said John Campbell, senior portfolio manager at Allspring Global Investments.
Healthcare stocks came under pressure after Wegobee maker Novo Nordisk warned it expected a significant drop in annual sales. The company’s U.S.-listed shares plunged nearly 15%.
Rival Eli Lilly fell 3.9%, and obesity drug maker Structure Therapeutics fell 6.75%.
Walmart rose about 3%, becoming the first brick-and-mortar retailer to reach $1 trillion in stock market value.
Advanced Micro Devices fell 1.7% ahead of its quarterly report after the bell.
Walt Disney Co. fell 0.2% after naming theme park chief Josh D’Amaro as CEO, putting a longtime insider at the helm and ending succession uncertainty.
PayPal fell 20% after the company said it expects 2026 profits to be lower than expected.
The S&P 500 index fell 0.84% to close at 6,917.81 points.
The Nasdaq fell 1.43% to 23,255.19 points, and the Dow Jones Industrial Average fell 0.34% to 49,240.99 points.
Even though the S&P 500 Index ended lower, advancers outnumbered decliners within the index by a 1.2-to-1 ratio.
Tuesday’s decline leaves the S&P 500 up about 1% in 2026 and the Nasdaq flat.
Volume on U.S. exchanges was high, with 23.5 billion shares traded compared to the previous 20 trading average of 19.6 billion shares.
Six of the S&P 500’s 11 sector indexes declined, with information technology leading the decline, down 2.17%, followed by communications services, down 1.28%.
flood of income
A quarter of the S&P 500 is scheduled to report quarterly results this week, and analysts expect companies to report earnings growth of nearly 11% in the December quarter, up from expectations of about 9% in early January, according to LSEG data.
Pfizer fell 3.3% despite better-than-expected fourth-quarter profits, while Merck rose 2.2% after its quarterly results.
PepsiCo rose 4.9% after the company announced price cuts on core brands such as Lay’s and Doritos.
Meanwhile, a bill to end the U.S. government shutdown narrowly cleared procedural hurdles in the House of Representatives, with a final vote for passage expected later in the day.
The partial shutdown has postponed Friday’s release of key employment data along with the JOLTS report, which was originally scheduled for Tuesday.
The S&P 500 recorded 81 new highs and 28 new lows. The Nasdaq recorded 202 new highs and 311 new lows.
(Reporting by Pranav Kashyap and Twesha Dixit in Bengaluru and Noel Randewich in San Francisco; Editing by Maju Samuel and Aurora Ellis)
