Wall Street ends sharply down as AI worries weigh

Wall Street ended sharply lower on Thursday, with the Nasdaq dragged to its lowest since November by tech heavyweights after Alphabet said it could double capital spending on AI in the race to dominate the emerging technology.

Shares of Alphabet fell 0.55 per cent after the Google parent said it plans as much as $US185 billion ($A265 billion) in capex in 2026. Together, it and its Big Tech rivals are expected ⁠to collectively shell out more than $US500 billion ($A716 billion) on AI this year.

Amazon shares also fell 4.4 per cent during regular trading and then tumbled another 10 per cent 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.

Investors are nervous about AI spending

Investors in recent months have grown more wary of heavy spending on AI, awaiting stronger signs those investments are actually boosting revenue and profits.

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 down 7.6 per cent and Salesforce losing almost 5.0 per cent.

The S&P 500 software and services index fell 4.6 per cent, down for a seventh straight session.

Investors look for other options

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

As traders dialled 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 dipped 0.9 per cent but remained in positive territory for the week. The S&P 500 growth index was down more than 4.0 per cent for the week.

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

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.