The S&P 500 software index fell 3.3% for a fifth day in a row, while the small- and mid-cap indexes posted gains of about 0.6 to 0.9%. Investors are wary of the crowded AI-driven rally and its impact on long-term growth. | Photo credit: JEENAH MAAN
Microsoft fell 2.3%, while Intuit and Atlassian fell more than 8% each. Adobe and Datadog each fell 6% and Oracle fell 2%.
CrowdStrike fell 3.8% and Snowflake fell 8.2%, while Salesforce lost 5.6% and Accenture fell 8.6%.
However, Palantir bucked the trend and rose 4.4% on strong results that boosted investor enthusiasm for AI demand.
The S&P 500 software and services index fell 3.3%, on pace to post a fifth straight day of losses.
The decline in high-flying software names followed new unease about how quickly newer, more capable artificial intelligence models could disrupt established companies. This would revive questions about whether current AI winners can protect pricing power and long-term growth.
“We have an expensive market and expectations are very high. Many areas, especially around AI, are priced for perfection. That has put us in a skittish environment,” said John Campbell, senior portfolio manager at Allspring Global Investments.
Concerns that the AI-powered rally has become crowded have recently led to a rotation into small caps and other overlooked segments of the market.
The Russell 2000, which beat the S&P 500 in January, rose 0.9% on the day, while the mid-cap S&P 400 rose 0.9% and the small-cap S&P 600 rose 0.6%.
Ben Falcone, managing director at Kayne Anderson Rudnick, said the small-cap lens offered a compelling counter-narrative – less about capex arms races and more about who is quietly turning AI into sustainable earnings growth.
Investors were also still digesting a sharp sell-off in gold and silver following the appointment of former Federal Reserve Governor Kevin Warsh, a development trader seen as hawkish.
Without technology, Walmart became the first retailer ever to reach a market value of $1 trillion, while its shares rose 2.2%.
Among mega-cap movers, Alphabet rose 0.1%, while Amazon fell 2.4%.
Both companies – members of the ‘Magnificent Seven’ – will report later this week. Their results are a new bellwether for the race to commercialize AI and whether companies can show clearer, tangible returns on rising capital expenditures that can support their high price tags.
Advanced Micro Devices and server maker Super Micro Computer both fell by more than 0.5% after the close.
Meanwhile, Walt Disney named theme parks head Josh D’Amaro as CEO, putting a longtime insider at the helm and ending uncertainty over succession. Shares fell 1.8%.
PayPal expects 2026 earnings to be below expectations, sending its shares tumbling 18.4%.
At 11:12 a.m. ET, the Dow Jones Industrial Average rose 41.07 points, or 0.08%, to 49,448.73, the S&P 500 lost 31.21 points, or 0.45%, to 6,945.23 and the Nasdaq Composite lost 240.62 points, or 1.02%, to 23,351.49.
PROFIT EARNINGS
With a quarter of the S&P 500 set to report quarterly results this week, analysts expect companies to have grown their profits by nearly 11% in the December quarter, up from an estimate of about 9% in early January, according to LSEG data.
Shares of Pfizer fell 3.6% despite reporting fourth-quarter profit above expectations, while Merck rose 1.4% after its quarterly results.
Shares of PepsiCo rose 3%, with the brand announcing a price cut on core brands like Lay’s and Doritos.
Markets were also looking ahead to a deal to be passed by the House of Representatives later in the day to end the latest shutdown that has once again pushed economic releases off schedule, delaying the closely watched January jobs report that was due Friday.
Tuesday’s JOLTS report has also been postponed.
Published on February 3, 2026
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