US STOCKS-Wall Street ends down as AI worries slam tech stocks

By Noel Randewich and Pranav Kashyap

Feb 4 (Reuters) - U.S. stocks ended lower on Wednesday, with losses in Advanced Micro Devices, Palantir and other technology companies, as investors worried about pricey valuations and whether Wall Street's AI rally has reached its peak.

Alphabet GOOGL.O fell almost 2% ahead of its quarterly results after the bell. After the close, it regained 2% as the company said it was aggressively ramping up spending as it deepens its investments in the AI race.

Advanced Micro Devices AMD.O tumbled 17% after the chipmaker forecast quarterly revenue that disappointed investors and suggested it is having a tough time competing against AI heavyweight Nvidia NVDA.O.

Nvidia dropped 3.4% and the PHLX semiconductor index .SOX fell 4.4%.

Palantir PLTR.O slumped almost 12%, reversing sharp gains from the previous day that were driven by the AI data company's strong quarterly sales.

"The size of the infrastructure buildout is unprecedented, and the pace of consumers and businesses adopting AI tools is also unprecedented. The stock market is having a really hard knowing where to price the stocks and what the future looks like. ... The market is suddenly skeptical and concerned about it," said Jed Ellerbroek, a portfolio manager at Argent Capital in St. Louis.

Some software companies added to recent losses amid worries that rapidly advancing AI could disrupt industry incumbents. Snowflake SNOW.K fell 4.6% and Datadog DDOG.O lost 3.3%.

"If you've got legacy software that's old and clunky, you're a ripe target for AI. We're a bit bearish on software in general, with the whole impetus of AI," said Josh Chastant, portfolio manager, public investments at GuideStone Funds.

Investors selling AI-related stocks shifted into less pricey companies that sat out the tech rally in recent years. The S&P 500 value index .IVX gained for a fifth straight session, while the S&P 500 growth index .IGX dropped.

The S&P 500 declined 0.51% to end the session at 6,882.72 points.

The Nasdaq fell 1.51% to 22,904.58 points, while the Dow Jones Industrial Average rose 0.53% to 49,501.30 points.

Even as the S&P 500 lost ground, seven of the 11 S&P 500 sector indexes rose, led by energy .SPNY, up 2.25%, followed by a 1.8% gain in materials .SPLRCM.

Volume on U.S. exchanges was heavy, with 24.6 billion shares traded, compared to an average of 19.9 billion shares over the previous 20 sessions.

Super Micro Computer's SMCI.O shares jumped 13.8% after the company raised its annual revenue forecast on sustained demand for its AI-optimized servers as companies ramp up data center capacity.

Limiting losses in the S&P 500, shares of the drugmaker Eli Lilly LLY.N rallied about 10% after the company forecast 2026 profit above Wall Street expectations.

The government's closely watched jobs report for January has been pushed back from its scheduled release on Friday due to a four-day partial government shutdown that ended on Tuesday.

In the meantime, the ADP national employment report on Wednesday showed that U.S. private payrolls increased less than expected in January amid job losses in the professional and business services, as well as manufacturing sectors.

Advancing issues outnumbered falling ones within the S&P 500 .AD.SPX by a 2.6-to-one ratio.

The S&P 500 posted 93 new highs and 23 new lows; the Nasdaq recorded 218 new highs and 318 new lows.