U.S. stocks closed mostly lower on Wednesday as a sharp sell-off in technology and artificial intelligence-linked names rekindled concerns that Wall Street’s powerful AI-driven rally may be losing momentum.
Losses in Advanced Micro Devices, Palantir, and Nvidia dragged on the broader market, with investors increasingly uneasy about lofty valuations and growing signs of divergence between market expectations and near-term earnings reality. The pullback came even as parts of the market outside high-growth technology continued to attract steady inflows.
The S&P 500 slipped 0.51% to 6,882.72, while the Nasdaq Composite fell 1.51% to 22,904.58, reflecting concentrated weakness in growth and tech-heavy names. The Dow Jones Industrial Average bucked the trend, rising 0.53% to 49,501.30, supported by gains in non-tech sectors and select defensive stocks.
Semiconductors were at the center of the day’s turbulence. AMD plunged 17% after issuing quarterly revenue guidance that disappointed investors and raised fresh questions about its ability to close the gap with Nvidia, the dominant force in AI chips. Nvidia itself fell 3.4%, while the Philadelphia Semiconductor Index dropped 4.4%, underscoring the broad pressure across the sector.
Palantir slumped nearly 12%, giving back much of the sharp gains it recorded a day earlier following strong quarterly sales. The reversal highlighted the fragile sentiment around AI-related stocks, where strong fundamentals are increasingly being weighed against stretched valuations and aggressive expectations baked into share prices.
“The size of the infrastructure buildout is unprecedented, and the pace of consumers and businesses adopting AI tools is also unprecedented,” said Jed Ellerbroek, a portfolio manager at Argent Capital in St. Louis. “The stock market is having a really hard time knowing where to price the stocks and what the future looks like. The market is suddenly skeptical and concerned about it.”
Alphabet added to the cautious tone ahead of its quarterly earnings, with shares falling nearly 2% during the regular session. After the close, the stock rebounded about 2% after the company said it was aggressively ramping up spending as it deepens its push into artificial intelligence, reinforcing the view that Big Tech’s capital expenditure cycle is far from over, even if near-term returns remain uncertain.
Software stocks also extended recent declines as investors reassessed how rapidly advancing AI tools could disrupt established players. Snowflake fell 4.6%, while Datadog lost 3.3%, reflecting broader anxiety about whether legacy software models can adapt quickly enough.
“If you’ve got legacy software that’s old and clunky, you’re a ripe target for AI,” said Josh Chastant, portfolio manager for public investments at GuideStone Funds. “We’re a bit bearish on software in general, with the whole impetus of AI.”
Despite the weakness in headline indexes, market internals pointed to an ongoing rotation rather than a broad-based sell-off. Investors continued shifting out of expensive growth stocks into cheaper, more cyclical or defensive names that largely missed the tech rally of recent years. The S&P 500 value index rose for a fifth straight session, while the S&P 500 growth index fell again.
That rotation was evident at the sector level. Seven of the S&P 500’s 11 sectors ended the day higher, led by energy, which gained 2.25%, followed by a 1.8% rise in materials. Those gains helped cushion losses in the broader index even as tech-heavy areas struggled.
Trading activity was elevated, with 24.6 billion shares changing hands on U.S. exchanges, well above the 20-session average of 19.9 billion shares, suggesting heightened conviction behind the day’s moves.
Not all AI-related names were under pressure. Super Micro Computer surged 13.8% after raising its annual revenue forecast, citing sustained demand for its AI-optimized servers as companies continue to ramp up data center capacity. The move highlighted that, even within the AI ecosystem, investors are becoming more selective, rewarding companies delivering clear, near-term growth.
Healthcare also provided support. Eli Lilly shares jumped about 10% after the drugmaker forecast 2026 profit above Wall Street expectations, helping to limit broader market losses.
On the macro front, investors continued to digest mixed signals from the labor market. The government’s closely watched January jobs report was delayed due to a four-day partial government shutdown that ended on Tuesday. In the meantime, the ADP national employment report showed U.S. private payroll growth came in below expectations, with job losses in professional and business services and manufacturing, adding another layer of uncertainty to the economic outlook.
Market breadth remained positive within the S&P 500, where advancing issues outnumbered decliners by a roughly 2.6-to-one ratio. The index posted 93 new highs and 23 new lows, while the Nasdaq recorded 218 new highs and 318 new lows, reflecting the uneven nature of the current market.
Overall, Wednesday’s session underscored a market grappling with the next phase of the AI trade: balancing undeniable long-term potential against near-term valuation risks, earnings execution, and the growing likelihood that gains will become harder to sustain at the pace seen over the past year.
