U.S. stocks are lower on Thursday as the market punishes companies labeled as potential losers by artificial intelligence technology.
The S&P 500 index fell 1.1%, as the early gains that had pushed it to near record highs disappeared. As of 2:20 p.m. ET, the Dow Jones Industrial Average was down 472 points, or 0.9%, and the Nasdaq Composite Index was down 1.7%.
AppLovin fell 18.3% despite reporting its latest quarter’s profit beat analyst expectations. Like other software companies, the company has recently come under pressure from concerns that AI could fundamentally change the way people use the internet while hurting its business.
AppLovin CEO Adam Foroughi dismissed concerns on a conference call with analysts, saying metrics show the company is doing well. “There is a huge disconnect between market sentiment and the reality of our business,” he said.
Nevertheless, the company’s stock extended its year-to-date losses to 32.2% on the day.
Cisco Systems fell 11.6% despite last quarter’s profit and revenue also beating analyst expectations. The tech giant indicated it may earn less per dollar of revenue this quarter than it did last quarter.
Analysts said this could be an indicator of the rising price of computer memory that everyone will have to pay amid the AI rush.
More broadly, there are growing questions about whether companies spending heavily on AI will ultimately see enough returns and productivity to justify their investments.
Concerns about AI have hit software stocks particularly hard, but the impact is spreading to other industries and other markets as well. In bonds, for example, “AI disruption risk” is likely to depress prices this year and into next, even if the threat is still vague, UBS strategists say.
“The timing of AI disruption remains uncertain, and the fog of uncertainty is unlikely to dissipate anytime soon,” strategists led by Matthew Misch said in a report.
Nevertheless, they expect AI risks to lead to increased defaults in junk bonds and other lower-rated markets. This could lead to higher borrowing costs, hurting even financially stable and strong companies, including Big Tech companies that borrow heavily to pay for AI investments. This spending is the main reason why the AI craze has become so big.
In a unlikely but highly damaging scenario, such spillovers “could be significant and undermine capital spending, investment plans, and ultimately the AI boom itself,” according to UBS strategists.
Meanwhile, some companies with large AI budgets to serve their customers are reaping the benefits.
Equinix, for example, soared 10.9% even though the digital infrastructure company’s latest quarterly results fell short of analysts’ expectations. “Demand for our solutions has never been higher,” CEO Adair Fox Martin said, citing financial forecasts for 2026 that exceeded analyst expectations.
The company’s data centers are helping power the world’s transition to AI.
Outside of tech, McDonald’s rose 1.9% after announcing its most recent quarter’s profit beat analysts’ expectations. The restaurant chain acknowledged moves to improve value and affordability, including lowering prices on some U.S. combo meals in September.
Meanwhile, Walmart’s 3.6% rise was one of the strongest drivers pushing the S&P 500 higher. Walmart erased losses from the start of the week after reports that spending across U.S. retailers slowed in December.
In the bond market, U.S. Treasury yields fell as investors looked for safer places to park their cash. The report also said that slightly more U.S. workers applied for unemployment benefits last week than economists expected.
Still, this number is lower than last week, indicating the pace of layoffs may be improving. It also received a surprisingly positive report on the job market on Wednesday, which said the nation’s unemployment rate improved last month.
Even if President Donald Trump continues to loudly and aggressively call for rate cuts, a strengthening job market could cause the Federal Reserve to keep rates on hold and continue to pause rate cuts. This is because while lower interest rates may boost the economy, they may worsen inflation.
All of this raises the stakes for Friday’s report on U.S. consumer-level inflation. Economists expect inflation to slow to 2.5% last month from 2.7% in December.
A separate report on Thursday showed sales of previously occupied homes fell more than economists expected last month, also weighing on yields.
The yield on the 10-year U.S. Treasury note fell to 4.10% from 4.18% late Wednesday.
In overseas stock markets, South Korea’s Kospi soared 3.1% as Samsung Electronics, SK Hynix and other high-tech stocks rose. Movement was more muted in other Asian markets and Europe.
Hong Kong’s Hang Seng index fell 0.9%, while France’s CAC40 index rose 0.3%.
Chan Ho-him, Matt Ott, Associated Press
