US STOCKS-Wall Street slumps as Alphabet capex plan, Qualcomm outlook deepen tech rout

By Pranav Kashyap and Twesha Dikshit

Feb 5 (Reuters) - The S&P 500 dropped to an over two-week low and the Nasdaq sank to its lowest level in more than two months on Thursday, as the AI theme came under renewed pressure after Alphabet's spending plans and Qualcomm's downbeat forecast rattled investors.

Shares of Alphabet GOOGL.O fell 4.2% after the Google parent said it would double its capital expenditure this year, signaling another aggressive push to strengthen its position in the AI race.

Qualcomm QCOM.O slid 8.2% after forecasting second-quarter revenue and profit below estimates.

The pressure spread across tech mega-caps, with Microsoft MSFT.O and Tesla TSLA.O down 3.4% and 3.7%.

Big Tech is expected to collectively funnel more than $500 billion into the buildout this year, reigniting questions about sky-high valuations and when returns will actually show up.

Those worries sharpened after Microsoft's results, sending traders out of pricey tech and into cheaper pockets of the market.

The CBOE volatility index .VIX, Wall Street's "fear gauge," rose 3.8 points to 20.49, hitting an over two-month high.

Amazon AMZN.O, another "Magnificent 7" stock, dropped 4.3% ahead of results, due after the market close.

"The AI trade which was the accelerant last year is perhaps the extinguisher this year with people realizing that AI is going to help certain kinds of companies but it is also going to hurt, particularly software, for example," said Melissa Brown, SimCorp's managing director of investment decision research.

"Earnings were reported and not quite as good as investors had hoped for, that was a catalyst for a selloff."

Software and data services stocks such as ServiceNow NOW.N and Salesforce CRM.N were down 5% and 4% respectively.

The declines deepened an already bruising week for the group, as investors fret that rapidly improving AI tools could start eating into demand for traditional software, and squeezing growth expectations across the sector.

The S&P 500 software and services index .SPLRCIS slid 3.2%, chalking up a seventh straight session in the red and wiping out about $830 billion in market value since January 28.

Amid risk-off sentiment, silver XAG= and gold XAU= resumed a slide, with the white metal plunging almost 13%, after rebounding in the last couple of days from a sharp drop. Bitcoin BTC= fell below the $70,000 mark.

As traders dialed back exposure to pricey AI stocks, the market's rotation into cheaper, overlooked corners kept gathering steam. The S&P 600 small-cap index .SPCY, the S&P 500 value index .IVX and the S&P 400 mid-cap index .SP400 were all on track for weekly gains, even as the S&P 500 was staring at a drop of more than 2%.

At 11:07 a.m. ET, the Dow Jones Industrial Average .DJI fell 644.50 points, or 1.30%, to 48,856.74, the S&P 500 .SPX lost 95.74 points, or 1.39%, to 6,786.87 and the Nasdaq Composite .IXIC lost 401.99 points, or 1.76%, to 22,500.42.

Consumer staples .SPLRCS, a defensive sector, was the only one of the index's 11 sectors trading in the green.

On the earnings front, Snap SNAP.K topped fourth-quarter revenue estimates, lifting its shares 10.8%.

Estee Lauder EL.N shares fell 21.5% as the Clinique owner forecast annual results below estimates. Tapestry TPR.N rose 8% after raising its annual profit forecast, while Hershey HSY.N added 8.8% on a better-than-expected annual profit forecast.

The number of Americans filing new applications for unemployment increased more than expected for the week ended January 31, while job openings dropped to the lowest level in more than five years in December.