By Hannah Erin Lang, Xavier Martinez and David Uberti
Wall Street has a new case of the AI jitters.
A slide in tech stocks intensified Wednesday, spreading from software into semiconductor shares and other companies linked to the infrastructure build-out for artificial intelligence. The Nasdaq composite posted consecutive 1% declines for the first time since April's tariff chaos.
Wednesday's pullback was broader than the software-specific rout that rattled markets Tuesday. Chip maker Advanced Micro Devices skidded 17% after a disappointing earnings print to notch its worst day since 2017. Software favorites AppLovin and Palantir both sank at least 11%. Data storage company Sandisk lost 16%.
The moves continued a slump that began after the startup Anthropic unveiled a suite of new tools that can perform industry-specific functions like reviewing legal contracts. Concerns about the rapidly expanding capabilities of AI wiped out around $300 billion from the market value of software and data-provider stocks such as Intuit, Equifax and PayPal Tuesday.
Traders said Wednesday's selling was orderly, and showed few signs of panic. But some investors said the rally that pushed major indexes to repeated records in recent months has carried prices of some stocks to eye-watering levels, leaving them vulnerable to outsize swings.
"With valuations where they are, market reactions are going to be pretty harsh," said Jack Ablin, chief investment strategist at Cresset Capital. "Expectations right now are very, very high."
With software companies still under pressure, the pain has spread beyond the stock market, driving down prices of software company loans in recent days. As of Tuesday, the average price of software company loans was 91.27 cents on the dollar, down from 94.71 cents at the end of last year, according to PitchBook LCD.
At the end of January, the extra yield, or spread, that investors demand to hold software loans over a benchmark short-term interest rate had jumped to 5.95 percentage points from 4.78 percentage points at the end of December.
Some $25 billion of software loans were trading at distressed levels -- below 80 cents on the dollar -- at the end of January, up from $11 billion a month earlier. That accounted for nearly a third of all distressed loans.
AI adoption is still at an early stage for many companies, but software companies are particularly exposed. "We are now in an environment where the sector isn't just guilty until proven innocent but is now being sentenced before trial," JPMorgan Chase analyst Toby Ogg wrote in a Wednesday note.
The selloff in software-as-a-service stocks also swept up several AI giants Wednesday, weighing down their shares. Meta has retreated 6.6% this week, while Nvidia slid 8.9%.
Michael Antonelli, a market strategist for Baird Private Wealth Management, warned that more likely reflected traders shifting positions than rethinking their broader market outlook.
"What does Nvidia have to do with SaaS?" he said. "People are selling some of their winners to fund some of their software carnage."
Bouts of volatility have rocked various sectors in recent months after new AI advancements pushed investors to revalue companies facing potential disruption. A former trader, Antonelli warned that the pullback from software stocks could already be overwrought.
"In my opinion, organizations aren't going to leave huge, enterprise-level software for something somebody vibe-coded in a backroom in Oakland," he added. "The market is going to shoot first and ask questions later about expensive stocks."
Nvidia chief executive Jensen Huang also warned that the recent software selloff was overhyped.
"There's a whole bunch of software companies whose stock prices are under a lot of pressure because somehow AI is going to replace them," Huang said late Tuesday at an event hosted by Cisco. "It is the most illogical thing in the world."
Investors continued a weekslong trend of rotating dollars out of longtime stock-market superstars such as chip stocks and the big tech giants, while funneling funds into more traditionally unloved corners of the market.
On Wednesday, they plugged money into companies more directly linked to an economy that is showing signs of accelerating growth, pushing up shares of firms ranging from Eli Lilly to Old Dominion Freight Line and MGM Resorts International. Seven of 11 S&P 500 sectors ended Wednesday in the green. The energy, materials and consumer staples sectors are all up by at least 12% this year.
The Dow Jones Industrial Average on Wednesday gained 0.5%, or 260 points. The S&P 500 finished down 0.5%, with 92 stocks setting new 52-week intraday highs -- the highest volume of such milestones in a single session since November 2024.
"This trade has already been happening," said Tom Bruni, head of markets and retail investor insights at the social platform Stocktwits. "This week we got some excuses for the market to really accelerate this."
That dynamic has left some riskier assets behind. Bitcoin fell below $73,000 on Wednesday, extending a decline that has dragged the world's largest cryptocurrency down more than 16% this year.
Given how richly valued many tech shares are, "when rotations occur, they occur faster than they have in the past," said Jonathan Corpina, senior managing partner at Meridian Equity Partners.
"If you're trading this market you've got to get in quick and get out quick," he said. "Your stomach pain might come on pretty quickly."
Write to Hannah Erin Lang at hannaherin.lang@wsj.com, Xavier Martinez at xavier.martinez@wsj.com and David Uberti at david.uberti@wsj.com
(END) Dow Jones Newswires
February 04, 2026 17:28 ET (22:28 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
