NEW YORK, Feb 4 — Wall Street ended sharply lower yesterday as investors worried about AI creating more competition for software makers, keeping them on edge ahead of quarterly reports from Alphabet and Amazon later this week.

AI heavyweights Nvidia and Microsoft each fell almost 3 per cent. Alphabet dropped 1.2 per cent ahead of its report today, while Amazon declined 1.8 per cent ahead of its Thursday report.

Investors in recent months have become pickier about AI-related stocks, looking for companies generating measurable returns from their outsized investments in the new technology.

Wall Street’s attention yesterday turned to technology companies that could face steeper competition and lower margins as a result of AI. One catalyst driving those concerns was Anthropic’s launch of a legal tool for its Claude AI chatbot.

“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.

Salesforce, Datadog and Adobe lost about 7 per cent, Synopsys and Atlassian fell about 8 per cent, and Intuit slumped 11 per cent.

AI data firm Palantir bucked the trend, rallying almost 7 per cent after strong quarterly results late on Monday.

The S&P 500 software and services index fell 3.8 per cent, down for a fifth consecutive day.

“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,” said John Campbell, senior portfolio manager, Allspring Global Investments.

Healthcare stocks came under pressure after Wegovy maker Novo Nordisk warned that it expected a steep decline in annual sales. The company’s US-listed shares plummeted nearly 15 per cent.

Rival Eli Lilly fell 3.9 per cent, while obesity drugmaker Structure Therapeutics lost 6.75 per cent.

Walmart climbed about 3 per cent to become the first brick-and-mortar retailer ever to hit US$1 trillion (RM4 trillion) in stock market value.

Advanced Micro Devices fell 1.7 per cent ahead of its quarterly report after the bell.

Walt Disney dipped 0.2 per cent after it named theme parks head Josh D’Amaro as CEO, placing a longtime insider at the helm and ending succession uncertainty.

PayPal slumped 20 per cent after it forecast 2026 profit below estimates.

The S&P 500 declined 0.84 per cent to end the session at 6,917.81 points.

The Nasdaq declined 1.43 per cent to 23,255.19 points, while the Dow Jones Industrial Average declined 0.34 per cent to 49,240.99 points.

Even as the S&P 500 ended lower, advancing issues outnumbered falling ones within the index by a 1.2-to-one ratio.

With yesterday’s losses, the S&P 500 is up about 1 per cent in 2026 and the Nasdaq is flat.

Volume on US exchanges was heavy, with 23.5 billion shares traded, compared to an average of 19.6 billion shares over the previous 20 sessions.

Six of the 11 S&P 500 sector indexes declined, led lower by information technology, down 2.17 per cent, followed by a 1.28 per cent loss in communication services.

Earnings deluge

With one quarter of the S&P 500 set to report quarterly results this week, analysts expect companies to have grown their earnings nearly 11 per cent in the December quarter, up from an estimate of about 9 per cent at the start of January, according to LSEG data.

Pfizer fell 3.3 per cent despite posting fourth-quarter profit above estimates, while Merck rose 2.2 per cent after its quarterly results.

PepsiCo gained 4.9 per cent after the company announced price cuts on core brands such as Lay’s and Doritos.

Meanwhile, legislation to end a US government shutdown narrowly cleared a procedural hurdle in the House of Representatives, setting up a vote on final passage later in the day.

The partial shutdown has postponed releases of key jobs data on Friday along with the JOLTS report, originally expected yesterday.

The S&P 500 posted 81 new highs and 28 new lows; the Nasdaq recorded 202 new highs and 311 new lows. — Reuters