S&P 500, Nasdaq drop as sell-off in software, cloud firms accelerates

NEW YORK: The S&P 500 and the Nasdaq dropped on Tuesday as a broad selloff in software and cloud stocks blunted upbeat results from Palantir and kept investors on edge ahead of earnings from Alphabet and Amazon later this week.

Microsoft fell 2.3percent, while Intuit and Atlassian slid more than 8percent each. Adobe and Datadog dropped 6percent each and Oracle slipped 2percent. CrowdStrike sank 3.8percent and Snowflake dropped 8.2percent, while Salesforce lost 5.6percent and Accenture was down 8.6percent.

Palantir, however, bucked the trend, rising 4.4percent on strong results that reinforced investor enthusiasm for demand tied to AI. The S&P 500 software and services index dropped 3.3percent, on pace to log its fifth consecutive day of losses.

The retreat in high-flying software names followed fresh unease about how quickly newer, more capable artificial intelligence models could disrupt established businesses - reviving questions over whether today’s perceived AI winners can protect pricing power and long-term growth.

“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.

Of late, concerns that the AI-driven rally has become crowded have sparked a rotation into small caps and other overlooked pockets of the market. The Russell 2000, which beat the S&P 500 in January, was up 0.9percent on the day, while the mid-cap S&P 400 gained 0.9percent and the small-cap S&P 600 added 0.6percent.

At 11:12 a.m. ET, the Dow Jones Industrial Average rose 41.07 points, or 0.08percent, to 49,448.73, the S&P 500 lost 31.21 points, or 0.45percent, to 6,945.23 and the Nasdaq Composite lost 240.62 points, or 1.02percent, to 23,351.49.

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