US STOCKS-Wall Street tumbles as AI worries weigh

By Noel Randewich

Feb 5 (Reuters) - Wall Street tumbled on Thursday, with the Nasdaq dragged to its lowest since November by losses in Microsoft MSFT.O, Amazon AMZN.O and other tech heavyweights after Alphabet GOOGL.O said it could double capital spending on AI in the race to dominate the emerging technology.

Shares of Alphabet fell 4.2% after the Google parent said it plans as much as $185 billion in capex in 2026. Together, it and its Big Tech rivals are expected to collectively shell out more than $500 billion on AI this year.

Adding to recent losses, Microsoft dropped 3.2%, Palantir PLTR.O lost 6% and Oracle ORCL.N fell 5.6%.

Amazon AMZN.O slid 4% ahead of its quarterly results after the bell. Investors will focus on the cloud computing heavyweight's plans for additional spending to build its AI data centers.

Shares of Nvidia NVDA.O, which stands to benefit from increased industry spending on AI, were nearly flat.

Investors in recent months have become increasingly wary of heavy spending on AI as they wait for stronger signs that those investments are paying off in the form of increased revenue and profits.

"This is the first time we've seen the large-cap tech companies -- the Microsofts and the Alphabets and the Amazons -- go through a really large capex cycle ... and we're seeing this volatility about whether this investment will translate, ultimately, into results," said Tom Hainlin, an investment strategist at U.S. Bank Wealth Management in Minneapolis.

Investors this week have also worried that rapidly improving AI tools could eat into demand for traditional software, squeezing profit margins across the sector.

Software and data services stocks added to recent losses, with ServiceNow NOW.N down 5.5% and Salesforce CRM.N losing 4.8%.

The S&P 500 software and services index .SPLRCIS slid 3.2%, set for a seventh straight session in the red.

"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.

Qualcomm QCOM.O slid 7.2% after forecasting second-quarter revenue and profit below estimates.

The CBOE volatility index .VIX, Wall Street's "fear gauge," briefly hit the highest in over two months.

As traders dialed back exposure to pricey AI stocks, the market's rotation into relatively cheaper stocks gained steam in recent days.

The S&P 500 value index .IVX was down 1%, but still in positive territory for the week. The S&P 500 growth index .IGX was down more than 4% for the week.

The S&P 500 was down 0.96% at 6,816.32 points.

The Nasdaq declined 1.12% to 22,648.66 points, while the Dow Jones Industrial Average was down 0.95% at 49,029.78 points.

Ten of the 11 S&P 500 sector indexes declined, led lower by materials .SPLRCM, down 2.69%, followed by a 2.25% loss in consumer discretionary .SPLRCD.

Snap SNAP.N topped fourth-quarter revenue estimates, but its shares fell almost 10%.

Estee Lauder EL.N shares fell 20% as the Clinique owner forecast annual results below estimates.

Fashion company Tapestry TPR.N rose 10% 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.

Declining stocks outnumbered rising ones within the S&P 500 .AD.SPX by a 2.1-to-one ratio.

The S&P 500 posted 44 new highs and 9 new lows; the Nasdaq recorded 103 new highs and 365 new lows.