U.S. stocks dropped sharply on Thursday as Wall Street hunted for companies viewed as potential losers from artificial intelligence, even when those same firms reported earnings and revenue that topped analysts’ expectations. The selloff helped push the S&P 500 to one of its weakest sessions since late November, with investors also weighing fresh signals from the bond market and data on the labor market.
Technology stocks bore much of the pressure, particularly software names that have benefited from the AI spending boom while also facing questions about how the technology could reshape businesses that rely on existing models of advertising, apps, or internet infrastructure. The market’s moves reflected a split between companies that investors believed could extract value from AI spending and those perceived as vulnerable to disruption, uncertainty, and margin pressure.
AppLovin fell nearly a fifth of its value. The company’s stock slid 19.7% after it reported a stronger profit for the latest quarter than analysts expected, a move that AP described as part of a broader reassessment of AI-linked winners and losers in software. AppLovin CEO Adam Foroughi told analysts on a conference call that “There’s a real disconnect between market sentiment and the reality of our business,” even as the company’s shares widened their loss for the year to 32.2% as the day began.
Cisco Systems also fell, declining 12.3% after results for the latest quarter beat analysts’ expectations. AP reported that Cisco indicated it may make less profit off each $1 of revenue during the current quarter than it did in the prior quarter, a signal AP said some analysts interpreted as consistent with higher costs for computer memory companies may face as AI demand accelerates.
Outside of pure software, AP said other parts of the market showed how investors balanced risk with “AI disruption risk” concerns. For bonds, UBS strategists wrote that “AI disruption risk” looks set to knock down prices even if the threat still appears hazy, warning that the timing of disruption “remains indeterminate” and that uncertainty is unlikely to dissipate quickly. UBS strategists said they expect the AI risk to lead to an increase in defaults in junk-bond and other low-rated markets, potentially making borrowing more expensive even for financially stable companies that are taking on debt to fund AI investments.
While some AI-exposed names fell, some AI-linked infrastructure and consumer companies rose. Equinix jumped 10.4% despite results that fell short of analysts’ expectations, after it issued forecasts for 2026 that topped expectations; AP reported that Equinix CEO Adaire Fox-Martin said that “demand for our solutions has never been higher.” In retail and dining, AP said McDonald’s rose 2.7% after it reported a stronger profit for the latest quarter than analysts expected, and Walmart climbed 3.8% to erase earlier losses after a report said spending at U.S. retailers overall stalled in December.
The broader market also reflected shifting expectations for interest rates. In the bond market, Treasury yields fell as investors looked for safer places to park their cash, and AP said slightly more U.S. workers filed for unemployment benefits last week than economists expected. AP also said the number was lower than the prior week and that the pace of layoffs may be improving, after a separate report on Wednesday said the nation’s unemployment rate improved last month.
The combination of a strengthening job market and cooling bond yields increased the stakes for Friday’s U.S. inflation report. AP reported that economists expect inflation to slow to 2.5% last month from 2.7% in December. AP also said another Thursday report showed sales of previously occupied homes slumped last month by more than economists expected, weighing on yields further; the 10-year Treasury yield fell to 4.10% from 4.18% late Wednesday.
Markets abroad were mixed. AP reported that South Korea’s Kospi rose 3.1% on gains for Samsung Electronics and SK Hynix, while Hong Kong’s Hang Seng fell 0.9% and France’s CAC 40 rose 0.3%.