S&P 500, Nasdaq fall as software jitters grip; Alphabet in focus

By Pranav Kashyap and Twesha Dikshit

Feb 4 (Reuters) – The S&P 500 and the Nasdaq fell, but the Dow edged higher on Wednesday, as some strong company earnings results offered a measure of support to a market still grappling with the selloff in some software and cloud stocks.

Advanced Micro Devices slid 12.2%, after the company forecast a slight dip in first-quarter revenue.

Peers Intel and Broadcom lost over 3.5% each and Nvidia was down 2.7% – the biggest drag on the benchmark index.

The S&P 500’s technology index lost 1.4%.

The software selloff underscores a growing worry that rapid advances in AI could disrupt long-established software business models and pressure the industry’s playbook.

CrowdStrike dropped 1%, while Snowflake was down 4.1%. Palantir fell 10%. A few companies reversed course – Salesforce and Atlassian were up 0.7% and 3.1%, respectively.

“If you’ve got legacy software that’s old and clunky, you’re a ripe target for AI. We’re a bit bearish on software in general, with the whole impetus of AI,” said Josh Chastant, Portfolio Manager, public investments at GuideStone Funds.

A crowded AI trade has prompted investors to hunt for cheaper opportunities in the market’s overlooked corners – from undervalued small-caps to more cyclically geared, out-of-favor names that have largely sat out of the tech rally last year.

The small-cap S&P 600 index added 1% to trade near a two-week high. The S&P 500 value index also gained 1% and was on track for its fifth consecutive session of advances.

The Russell 2000 was on pace for a weekly rise – outpacing the S&P 500, which was headed for a weekly decline.

“If you look underneath the hood, there’s certainly a rotation. There’s a huge valuation gap still between large and small caps, so you’ve got that tailwind as well,” Chastant added.

Seven of the 11 S&P 500 sectors were in positive territory.

Materials rose 1.6% after gold and silver miners were boosted by an uptick in bullion and the white metal’s prices.

Defensive sectors such as consumer staples rose 1.2%.

Meanwhile, Super Micro Computer’s shares jumped 13% after the company raised its annual revenue forecast on sustained demand for its AI-optimized servers as companies ramp up data-center capacity.

Shares of the drugmaker Eli Lilly rose 9.3% after the company forecast 2026 profit above Wall Street expectations.

At 11:32 a.m. ET, the Dow Jones Industrial Average rose 388.76 points, or 0.79%, to 49,629.75, the S&P 500 lost 16.12 points, or 0.24%, to 6,901.69 and the Nasdaq Composite lost 254.68 points, or 1.09%, to 23,000.51.

Alphabet fell 2% ahead of its results, due after markets close, while Amazon edged down 0.8% before its earnings report on Thursday.

Markets will scrutinize the results from the “Magnificent Seven” for evidence that massive capital-spending plans are yielding the kind of returns that justify their lofty valuations.

SHUTDOWN ENDS, DATA AWAITED

U.S. President Donald Trump on Tuesday signed a spending deal into law, ending a partial government shutdown that had snarled the release of key labor-market data this week.

The government is now expected to announce when the key nonfarm payrolls and JOLTS data will be released. In their absence, markets would have to rely on private data providers.

U.S. private payrolls increased less than expected in January, the ADP’s national employment report showed.

(Reporting by Pranav Kashyap and Twesha Dikshit in Bengaluru; Editing by Shilpi Majumdar, Shinjini Ganguli and Krishna Chandra Eluri)