US STOCKS-S&P 500, Nasdaq close down as Big Tech's soaring AI budgets trigger flight
29/01/2026 21:00
Gainers include Meta, IBM, SouthWest, Lockheed Microsoft slumps in software industry sell off Tesla drop after quarterly results Caterpillar advances on reporting higher Q4 profit Updates with preliminary closing prices By Sinéad Carew and Pranav Kashyap Jan 29 (Reuters) - Wall Street's main indexes finished lower on Thursday with technology-heavy Nasdaq leading declines as investors were rattled by the latest earnings reports and worried about whether hefty spending on artificial intelligence would pay off for mega‑cap tech companies. Microsoft MSFT.O shares slumped after the software giant's cloud revenue failed to impress and stoked fears the hefty outlays for its OpenAI alliance were not reaping returns fast enough. It was a big drag on the S&P 500 while other software stocks also tumbled with SAP's SAPG.DE U.S.-listed shares tumbling after its cautious cloud outlook and ServiceNow NOW.N shares falling sharply as its earnings report added to the gloom. "Microsoft disappointed and there are some genuine concerns that AI investments will eat the software companies' lunches," said John Praveen, managing director & Co-CIO, Paleo Leon in Princeton, New Jersey. Investors are trying to "reduce exposure to stocks and play it safe" against a backdrop of broader uncertainties including who the Federal Reserve's next chair will be and how many interest rate cuts it will make, according to Praveen who also cited political uncertainties around Washington's stance in relation to Iran and Greenland and the potential for a U.S. government shutdown. "There are all sorts of storm clouds in the background," he said. According to preliminary data, the S&P 500 .SPX lost 10.41 points, or 0.15%, to end at 6,967.62 points, while the Nasdaq Composite .IXIC lost 179.39 points, or 0.75%, to 23,678.05. The Dow Jones Industrial Average .DJI rose 21.05 points, or 0.04%, to 49,036.65. Software companies caught up in the selloff included Salesforce CRM.N, Oracle ORCL.N, Adobe ADBE.O and cloud security firm Datadog DDOG.O. For some software companies, such as ServiceNow and Salesforce, the fear is that "AI is going to disrupt their business a little bit," if AI can be used "to supplant some of their services," said Jay Hatfield, CEO and CIO of Infrastructure Capital Advisors in New York. "It doesn't really matter, what the reality is or isn't. Those stocks are getting hit pretty hard," he said. Among megacap companies, Tesla TSLA.O shares went into reverse after the electric‑vehicle maker outlined plans to more than double capital expenditures to a record level. Among the S&P 500's 11 major industry sectors, technology .SPLRCT was the biggest laggard. Communications services .SPLRCL was one of the strongest however, as Facebook parent Meta META.O rallied sharply. Bucking the trend among megacaps, the social media giant paired an upbeat revenue forecast with a 73% jump in this year's capex budget. In other positive news, technology bellwether IBM IBM.N shares rose after its fourth-quarter earnings beat estimates. The energy index .SPNY rose sharply on the back of surging oil prices, with Brent crude futures hitting a near six-month high on rising concerns about a possible U.S. military attack on Iran. O/R In other notable earnings, Caterpillar CAT.N and Mastercard MA.N rose after both posted a higher profit for the quarter. Defense contractor Lockheed Martin LMT.N shares rallied after it forecast 2026 earnings above Wall Street expectations. Southwest Airlines LUV.N shares soared after the carrier forecast a stronger-than-expected annual profit, putting it ahead in S&P 500 percentage gains. Among other stock moves, rare-earth miners slid following a report the Trump Administration would step back from critical mineral price floors. USA Rare Earth USAR.O fell along with MP Materials MP.N, Critical Metals CRML.O and United States Antimony UAMY.A. (Reporting by Sinéad Carew and Chuck Mikolajczak in New York, Pranav Kashyap and Twesha Dikshit in Bengaluru; Editing by Krishna Chandra Eluri and David Gregorio) ((sinead.carew@thomsonreuters.com))