Markets Punish Potential Losers From AI Boom

US stocks fell sharply on Thursday as the market punished companies seen as potential losers from artificial intelligence technology.

• The S&P 500 fell 108.71 points, or 1.6%, to 6,832.76 for its second-worst day since Thanksgiving, though it's still near its all-time high set late last month.
• The Dow Jones Industrial Average fell 669.42 points, or 1.3%, to 49,451.98.
• The Nasdaq composite fell 469.32 points, or 2%, to 22,597.15.

Cisco Systems was one of the heaviest weights on the market after warning of potentially higher expenses, while AppLovin tumbled as worries about AI competition continue to hit software companies, the AP reports. Treasury yields tumbled in the bond market ahead of a report coming Friday on inflation at the US consumer level.

• AppLovin dropped 19.7% despite reporting a stronger profit for the latest quarter than analysts expected. Like other software companies, it's come under pressure recently from worries that AI may undercut its business while fundamentally changing how people use the internet. CEO Adam Foroughi pushed back on the concerns, saying in a conference call with analysts that indicators show his company is doing well. "There's a real disconnect between market sentiment and the reality of our business," he said. Its stock nevertheless increased its loss for the young year so far, which came into the day at 32.2%.
• Cisco Systems dropped 12.3% despite likewise topping analysts' expectations for profit and revenue last quarter. The tech giant indicated that it may make less profit off each $1 of revenue during the current quarter than it did in the past quarter. Analysts said that could be an indicator of higher prices for computer memory that everyone is having to pay during the rush driven by AI.

More broadly, questions are rising about whether businesses that are spending heavily on AI will end up seeing high-enough profits and productivity to make the investments worth it. The AI worries have hit software stocks particularly hard, but they're spreading to other industries and other markets. For bonds, for example, "AI disruption risk" looks set to knock down prices through this year and into next, even if the threat still looks hazy, according to strategists at UBS. The expectation is that the AI risk will lead to an increase in defaults in the junk-bond and other low-rated markets. That could hurt even strong, financially stable companies by making it more expensive for them to borrow, including the Big Tech businesses that have been borrowing heavily to pay for their AI investments.

• In the meantime, some of the companies serving customers with huge AI budgets are benefiting. Equinix jumped 10.4% even though the digital infrastructure company's results for the latest quarter fell short of analysts' expectations. It gave financial forecasts for 2026 that topped analysts' expectations, and CEO Adaire Fox-Martin said that "demand for our solutions has never been higher."

Outside of tech, McDonald's rose 2.7% after reporting a stronger profit for the latest quarter than analysts expected. The restaurant chain credited moves to improve its value and affordability, including cutting prices on some US combo meals in September. Walmart's rally of 3.8%, meanwhile, was one of the strongest forces pushing upward on the S&P 500. It erased losses from earlier in the week after a report said spending at US retailers overall stalled in December.