NEW YORK, Feb 4, 2026, 13:34 EST
- Tech stocks sold off again, dragging Nasdaq and S&P 500 lower, even as the Dow climbed on a shift into value and small caps.
- Advanced Micro Devices dropped following a forecast of a modest revenue decline in the first quarter, dragging down other chip stocks.
- Alphabet’s earnings are set to drop after the bell, while traders await the delayed U.S. labor figures.
The S&P 500 and Nasdaq dropped Wednesday, pressured by renewed selling in software and chip shares. Advanced Micro Devices slumped following its earnings outlook. The Dow, however, nudged up as investors favored sectors viewed as more affordable or stable. 1
The selloff hits now as the market grapples with two conflicting forces: massive AI investments and the risk that AI tools could disrupt the software companies that powered the previous cycle. This tug-of-war unfolds amid a packed earnings week.
It’s coming through more as a rotation than a pure risk sell-off. Traders use “risk-off” to mean shifting away from growth into safer spots, but Wednesday’s action felt more like a scramble for anything that wasn’t already priced to perfection.
By 11:32 a.m. ET, the Dow had climbed 0.79%, even as the S&P 500 slipped 0.24% and the Nasdaq fell roughly 1.1%, Reuters reported. Seven out of 11 S&P 500 sectors gained, highlighting that the tech sector’s losses were fairly isolated.
AMD dropped 12.2% following a forecast of a modest decline in first-quarter revenue. Shares of Intel and Broadcom each slipped over 3.5%, while Nvidia dropped 2.7%, adding to the tech sector’s losses.
The S&P 500 technology sector slipped 1.4%. CrowdStrike edged lower, Snowflake slid over 4%, while Palantir tumbled roughly 10% in early trading.
“If you’re running legacy software that’s outdated and clunky, AI is going to zero in on you,” said Josh Chastant, a portfolio manager at GuideStone Funds. He added they’re somewhat bearish on software overall, given the AI-driven shakeup hitting older business models.
Tuesday set the stage early. “We’re seeing a lot of software companies across the spectrum get hit,” said Art Hogan, chief market strategist at B. Riley Wealth, as investors fretted over how AI competition might squeeze margins. John Campbell, senior portfolio manager at Allspring Global Investments, described the market as expensive and “priced for perfection,” which made it jittery. 2
Small caps and value stocks saw buying interest. The S&P 600 gained roughly 1%, while the S&P 500 value index climbed about 1%. Chastant highlighted a significant valuation gap between large and small caps as a key driver.
Materials climbed 1.6%, boosted by higher bullion prices lifting miners. Consumer staples also gained 1.2%. Super Micro Computer surged 13% following an upgraded annual revenue forecast driven by demand for AI-optimized servers. Eli Lilly jumped 9.3% after projecting 2026 profits that topped Wall Street estimates.
A Seeking Alpha market note highlighted another group of “flame fanners” amid the Nasdaq drop, naming Constellation Energy, Seagate, Western Digital, Applied Materials, Lam Research, Micron, Strategy, Palantir, AppLovin, and AMD. 3
Investors shifted positions ahead of key megacap earnings. Alphabet shares dropped roughly 2% before its post-close report, while Amazon slipped ahead of Thursday’s results. Traders are watching closely for evidence that hefty AI investments are paying off.
Washington threw in a curveball. President Donald Trump approved a spending deal to end the partial government shutdown, but markets are still stuck waiting on the release date for delayed nonfarm payrolls and JOLTS (job openings) figures. Meanwhile, ADP reported that U.S. private payrolls in January grew by less than anticipated.
The risk: the narrative could flip quickly. A sharp miss from Alphabet, stronger proof that AI investment is delivering, or a softer jobs report might stabilize tech stocks — but if companies offer more cautious guidance, the biggest question about market valuations will remain, blinking on the screen.
