• Estee Lauder drops after forecast misses estimates
• All eyes on Amazon results after markets close
• Investors sell AI-related stocks
• S&P 500 -1.23%, Nasdaq -1.59%, Dow -1.20%

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

Shares of Alphabet fell 0.55% 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.

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Adding to recent losses, Microsoft dropped 5%, Palantir (PLTR.O) , opens new tab lost 6.8% and Oracle (ORCL.N) , opens new tab fell 7%.

Amazon (AMZN.O) , opens new tab lost 4.4% during regular trading and then tumbled another 10% after the closing bell, joining its Big Tech peers in projecting massive capital expenditures in 2026. It was the latest sign that tech companies will not hit the brakes anytime soon on hefty AI investments.

Shares of chipmaker Nvidia (NVDA.O) , opens new tab, which stands to benefit from increased industry spending on AI, declined 1.4%.

Investors in recent months have grown more wary of heavy spending on AI, awaiting stronger signs those investments are actually boosting 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) , opens new tab down 7.6% and Salesforce (CRM.N) , opens new tab losing almost 5%.

The S&P 500 software and services index (.SPLRCIS) , opens new tab fell 4.6%, down for a seventh straight session.

"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) , opens new tab slid 8.5% after forecasting second-quarter revenue and profit below estimates.

The CBOE volatility index (.VIX) , opens new tab, 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) , opens new tab dipped 0.9%, but remained in positive territory for the week. The S&P 500 growth index (.IGX) , opens new tab was down more than 4% for the week.

The S&P 500 declined 1.23% to end the session at 6,798.40 points. The Nasdaq declined 1.59% to 22,540.59 points, while the Dow Jones Industrial Average declined 1.20% to 48,908.72 points.

Nine of the 11 S&P 500 sector indexes declined, led lower by materials (.SPLRCM) , opens new tab, down 2.75%, followed by a 2.59% loss in consumer discretionary (.SPLRCD) , opens new tab.

Snap (SNAP.N) , opens new tab topped fourth-quarter revenue estimates, but its shares declined more than 13%.

Estee Lauder (EL.N) , opens new tab shares fell 19% as the Clinique owner forecast annual results below estimates.

Fashion company Tapestry (TPR.N) , opens new tab rose 10% after raising its annual profit forecast, while Hershey (HSY.N) , opens new tab climbed 9% 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) , opens new tab by a 1.8-to-one ratio.

The S&P 500 posted 44 new highs and 10 new lows; the Nasdaq recorded 113 new highs and 425 new lows.

https://www.reuters.com/business/sp-nasdaq-futures-subdued-markets-digest-alphabets-ai-spending-plans-2026-02-05/