Stocks Fall as Microsoft Revives AI Spending Angst: Markets Wrap

(Bloomberg) — The stock market was rattled by a slide in most megacaps, which showed no signs of easing up on artificial-intelligence spending even as doubts persist about demand to justify all that capital. Big moves in commodities saw gold plunging as oil soared. Bitcoin dipped below $84,000.

While gains in economically sensitive shares pulled the S&P 500 away from session lows, technology giants dragged down the Nasdaq 100 by 1%. Microsoft Corp. tumbled 12% – the most since 2020 – on concern it could take a while for AI investments to pay off. Meta Platforms Inc.’s solid outlook eased worries about its spending plans. Apple Inc. reports results later Thursday.

Wall Street is gearing up for a borrowing bonanza to bankroll AI projects that could push February corporate bond sales to a record, even as warnings against complacency continue to percolate. International Business Machines Corp. is selling dollar and euro bonds after reporting solid results.

The “Magnificent Seven” tech giants have led the stock market higher for much of the past three years. But that reversed at the end of 2025 as Wall Street grew skeptical of the hundreds of billions of dollars the companies are spending to develop AI and when the returns on those investments will materialize.

“The one-way bet on AI leadership is now starting to look overcrowded,” said Fawad Razaqzada at Forex.com. “There is now some fear creeping into investors’ minds that the AI theme may not be as immediately lucrative as hoped.”

Still, all is not lost, he noted. The fact that the Nasdaq is easing back from elevated levels is a clear sign “it is far too early to talk about the peak in tech,” Razaqzada said.

The day after the Federal Reserve decided to stand pat saw an uneventful batch of economic data. President Donald Trump said he would announce his nominee to chair the Fed “next week,” and reiterated his expectation that the central bank’s new leader will lower interest rates.

The S&P 500 fell 0.6% after earlier sliding as much as 1.5%. The yield on 10-year Treasuries dropped two basis points to 4.23%. The dollar barely budged while still heading for its worst month since June.

Gold reversed an earlier rally that took the precious metal to a record above $5,500. Brent crude topped $71 after President Donald Trump warned Iran to make a nuclear deal or face military strikes.

As earnings season kicks into high gear, investors are looking beyond the headline and guidance numbers. They seek clarity on the impacts of the evolving trade landscape as well as clues regarding the trajectory of AI capital investments, according to Rob Anderson and Thanh Nguyen at Ned Davis Research.

“Earnings could help solidify the rotation away from growth to value if growth rates and revision trends continue to suggest a broadening beyond the tech megacaps later this year,” they said. “Conversely, a strong quarter from the megacaps could help growth sectors regain leadership status.”

While earnings growth for the “Magnificent Seven” is expected to continue to outpace the remaining S&P 500 shares in each quarter in 2026, the gap is seen narrowing throughout the year, they noted.

The group of big techs is expected to post 20% profit growth for the fourth quarter, which would be the slowest pace since early 2023, according to data compiled by Bloomberg Intelligence.

“If revision trends continue to suggest earnings will broaden throughout 2026, it could support the case for the value rotation that began at the end of October to persist in 2026,” said Anderson and Nguyen.

After years that saw a handful of megacap AI firms do the heavy lifting, traders are questioning the durability of the trade, prompting money managers to diversify away from the bull market’s longtime winners.

“The AI theme is overcrowded, and investors are revaluing the AI trade, so they are re-weighting big-tech stocks in their portfolios,” said Matt Maley at Miller Tabak & Co.

This week brought the first wave of major tech earnings, and a clear theme is emerging, according to Angelo Kourkafas at Edward Jones.

“Companies are ramping up AI‑related infrastructure spending, and markets are rewarding those that can turn these investments into earnings,” he said. “Firms without a clear monetization strategy are facing more scrutiny.”

More broadly, Kourkafas says the tech sector is still expected to deliver strong profit growth in the S&P 500, with AI remaining an important catalyst.

“However, that growth is slowing from earlier quarters even as other sectors accelerate, supporting what we see as this year’s key theme: a broadening of market leadership,” he concluded.

Investors appear a little more willing at the start of the year to rebalance at least some of their positioning away from the AI trade, for valid reasons, and toward asset categories, sectors, industries, and companies that are more exposed to the “real” economy, accorrding to Anthony Saglimbene at Ameriprise.

“Unless reports from Mag Seven companies materially reset the earnings outlook (which we believe will not be the case), the early-year preference for small caps and non-tech cyclicals could remain intact as investors seek a wider base of earnings contributors and index performance participants,” he said earlier this week.

After three consecutive years of double-digit returns, the equity markets have proven to be incredibly resilient. However, the outlook for 2026 is for a “bull market with a lowercase ‘b’”— defined by episodic volatility, aggressive sector rotations, P/E multiple contraction, and outperformance by small- and mid- cap stocks, according to Craig Johnson at Piper Sandler.

“Under the surface, a true stock-picker’s market is emerging with more constructive charts setting up across many sectors,” Johnson said. “We reiterate our S&P year-end price objective of 7,150 — a modest single-digit gain — but note that the real opportunity this year lies in stock picking, not at the index level.”

Wall Street’s record-setting stock rally loading high profit expectations into share prices, investors are punishing companies heavily for disappointments, with the average post-results stock move relative to the benchmark index showing a drop of half a percentage point — the first negative reading in two years.

Meta will double capital spending to as much as $135 billion this year, an all-in bet on AI. Tesla Inc. will spend $20 billion this year on pursuits including AI, self-driving vehicles and robotics — almost double Wall Street estimates — and plow another $2 billion into Chief Executive Officer Elon Musk’s xAI startup.

Meantime, Microsoft’s spending surged to a record high and cloud sales growth slowed, triggering investor concerns that it could take longer than expected for the company’s AI investments to pay off.

During the analyst call, Microsoft Chief Executive Officer Satya Nadella said companies are now paying for 15 million subscriptions to the M365 Copilot, Microsoft’s main AI tool for office workers. Adoption is growing among the company’s enormous base of corporate users, Nadella said.

“In addition to measuring AI monetization via cloud revenue growth, we are increasingly seeing evidence of productivity gains due to AI adoption,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “As in any innovation cycle in the past, we expect to see a performance handover from the enablers to the users, and companies that leverage AI to improve business outcomes should see tangible financial benefits.”

That means AI beneficiaries are likely to “broaden” not only to the intelligence and application layers of the value chain, but also to other sectors such as financials and health care, she said.

“So, we maintain our conviction that AI innovation will continue to drive equity returns in the coming years, and investors should broaden their exposure across the value chain,” Hoffmann-Burchardi concluded.

While some investors are raising alarms of a looming bubble in AI, Blackstone Inc. President Jon Gray is focused on what happens when industries change overnight, like what happened to “the Yellow Pages back in the ‘90s when the internet came along,” he said Thursday in a Bloomberg Television interview.

“Every deal that we’re doing today, in the first two pages of the memo, we’re saying, ‘What is the AI risk?’” Gray said.

Legendary investment strategist Jeremy Grantham, known for forecasts that have occasionally presaged major market dislocations such as in 2000 and 2008, argues that the current AI boom is a classic technology bubble wrapped around a genuinely transformative innovation, and that history suggests both the promise and the peril are real.

“The rule from history is that great technological innovations lead to great bubbles,” the co-founder of GMO said. “AI is maybe the most visibly impressive innovation of the last 100 years, perhaps of a magnitude equal to the railways of the 19th century. It should not be surprising that it appears to be moving through the same pattern both rapidly and powerfully.”

Grantham argues that when investor confidence eventually reaches its limits, “the deflating of the AI bubble will lead to a major stumble for the economy, a plunge in profits, and a severe decline in valuations.” He notes that AI reversed a developing bear in late 2022 “like a multi-stage rocket,” reigniting speculation around a narrow group of market leaders even as valuations moved further away from long-term norms.

Corporate Highlights:

Nvidia Corp., Microsoft Corp. and Amazon.com Inc. are in discussions to invest as much as $60 billion in OpenAI as part of a major new funding round, the Information reported, citing people familiar with the talks. Nvidia hasn’t yet received any orders from Chinese customers for its H200 AI chips as Beijing is still deciding whether to allow imports of the US firm’s components, according to its chief executive officer. Tesla Inc. will spend over $20 billion on a dramatic reshuffling of factory lines reflecting Elon Musk’s repositioning of the carmaker coming off a multiyear sales slump. Tesla reported fourth-quarter profit that surpassed expectations. ServiceNow Inc. gave a sales outlook in the current quarter that was stronger than expected, but failed to reduce investor anxieties that artificial intelligence will disrupt the software maker’s business. Lam Research Corp. forecast adjusted earnings per share for the third quarter that beat the average analyst estimate. US auto safety regulators are investigating a Waymo autonomous vehicle that struck a child near a school in Santa Monica, California, the second recent probe to examine the behavior of the Alphabet Inc. unit’s robotaxis near children. Caterpillar Inc. got an earnings boost from selling power generation equipment to AI data centers in its fourth quarter, helping drive quarterly results that topped Wall Street’s expectations. Honeywell International Inc.’s outlook for 2026 topped Wall Street estimates, while the spinoff of its aerospace unit is set to happen earlier than expected. Starbucks Corp. sees sales and earning growth over the next few years as its turnaround plan takes hold. Mastercard Inc. reported fourth-quarter earnings that beat estimates as consumers continued to turn to the company’s cards as a payment option. Comcast Corp. reported revenue and profit in the fourth quarter that met or surpassed Wall Street expectations, even as it continued to lose cable TV and internet customers. The UK warned some patients have died of severe inflammation of the pancreas linked to obesity and diabetes drugs such as Eli Lilly & Co.’s Mounjaro and Novo Nordisk A/S’s Wegovy. Carvana Co. bounced from a steep selloff as Wall Street analysts rushed to defend the online used-car dealer’s business following a report from short seller Gotham City Research that accused the company of overstating earnings. Lazard Inc. named Tracy Farr chief financial officer as it reported fourth-quarter revenue and profit that beat analysts’ estimates. Blackstone Inc. reported a surprise jump in distributable earnings as dealmaking reignited and reached what President Jon Gray calls “escape velocity.” For executives, that unleashed some of their richest rewards since the pandemic. First Brands Group founder Patrick James and his brother Edward, a former executive at the company, were indicted by federal prosecutors in New York following the collapse of the bankrupt auto-parts maker last year. Lockheed Martin Corp. said it reached a deal with the Pentagon to increase THAAD interceptor production, as the company issued an upbeat guidance for 2026 amid record deliveries of its F-35 fighter and growing missile sales. Southwest Airlines Co. reported results that topped analyst estimates, signaling the fruits of a turnaround after a challenging year as the US carrier rolls out new initiatives to boost profit. Royal Caribbean Cruises Ltd.’s results showed as demand for cruise holidays keeps accelerating, which could see the liner add as many as six additional ships to its fleet. Joby Aviation Inc. is raising $1 billion from the sale of shares and convertible bonds, as the air taxi company seeks to double production capacity by 2027. Air India Ltd. firmed up an order for additional 30 Boeing Co. 737 Max aircraft in an aggressive fleet expansion as air travel demand surges in the world’s most-populous country. VSE Corp., a provider of aftermarket parts and services to the aviation industry, agreed to buy closely held Precision Aviation Group for about $2.025 billion in a cash-and-stock deal. Dow Inc. plans to cut about 4,500 jobs as it aims to simplify and streamline operations. International Paper Co. plans to break up and spin off its European packaging operations. Siemens AG became Germany’s largest company by market value, overtaking SAP SE after the software firm’s shares plunged following a disappointing sales outlook. Deutsche Bank AG closed out a record year for profit with higher trading income and a new share buyback, a boost to Chief Executive Officer Christian Sewing a day after a raid of its Frankfurt offices raked up memories of the lender’s past troubles. BBVA SA plans to issue two significant risk transfer deals linked to around €7 billion ($8.4 billion) of assets, according to people with knowledge of the matter ING Groep NV reported quarterly profit that beat estimates and it also lifted the profitability guidance for 2027. SAP SE plunged as a key indicator for future sales slipped to a level that Chief Executive Officer Christian Klein previously said would be a “disappointment,” adding to worries of how artificial intelligence will disrupt the software industry. Nokia Oyj’s fourth-quarter adjusted profit fell about 3% from a year earlier, as the Finnish mobile equipment maker streamlines its business to focus on connections that enable artificial intelligence growth. Roche Holding AG reported disappointing revenue for a blockbuster eye medicine and lackluster growth predictions for the year. AstraZeneca Plc will invest $15 billion in China through 2030 to expand medicines manufacturing as well as research and development, in a further commitment to the UK drugmaker’s already sizable presence in the mainland. EasyJet Plc reported a first-quarter loss before tax of £93 million ($128 million), exceeding analyst estimates, though its chief executive officer said summer sales are looking strong after a record January booking period. Samsung Electronics Co.’s chip unit beat expectations with a more than five-fold gain in profit, a healthy signal for an artificial intelligence spending wave that’s triggered a surge in memory demand. STMicroelectronics NV, a chip supplier for Tesla Inc. and Apple Inc., forecast first-quarter revenue that beat analysts’ estimates after demand from consumer electronics customers showed signs of recovery at the end of last year. What Bloomberg Strategists say…

“A selloff on this scale naturally creates a buying opportunity, and stocks should recover much of Thursday’s losses at some point. More than anything though, this selloff represents a shift in the narrative around AI.”

—Sebastian Boyd, Macro Strategist, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.6% as of 3:01 p.m. New York time The Nasdaq 100 fell 1.1% The Dow Jones Industrial Average fell 0.2% The MSCI World Index fell 0.4% Bloomberg Magnificent 7 Total Return Index fell 0.7% The Russell 2000 Index fell 0.5% Microsoft fell 12% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1951 The British pound fell 0.1% to $1.3793 The Japanese yen rose 0.2% to 153.11 per dollar Cryptocurrencies

Bitcoin fell 6.1% to $83,788.35 Ether fell 7.6% to $2,788.71 Bonds

The yield on 10-year Treasuries declined two basis points to 4.23% Germany’s 10-year yield declined two basis points to 2.84% Britain’s 10-year yield declined three basis points to 4.51% The yield on 2-year Treasuries declined two basis points to 3.55% The yield on 30-year Treasuries was little changed at 4.85% Commodities

West Texas Intermediate crude rose 3.5% to $65.41 a barrel Spot gold fell 2.2% to $5,300.19 an ounce ©2026 Bloomberg L.P.