Dow Jones Industrial Average declines amid Microsoft drop and fading AI optimism
- Megacap tech earnings dragged markets lower, led by Microsoft’s sharp post-earnings drop.
- Software stocks slid as AI optimism faded, pushing the IGV ETF into bear market territory.
- Meta earnings and record-high copper prices stood out as key pockets of strength.
US equities faced renewed pressure on Thursday as megacap technology earnings and the Federal Reserve’s (Fed) tepid showing this week weighed on sentiment. The S&P 500 fell 0.7%, the Nasdaq dropped 1.6%, and the Dow slipped around 0.2%, while cryptocurrencies declined more than 4% to their lowest levels in nearly two months. Microsoft was the primary drag, tumbling 11% after reporting slower cloud growth and issuing weaker operating margin guidance, marking its worst day since early 2020.
Rising tides don't lift all boats forever
Weakness spread across the software sector, reflecting growing investor unease about still-rising artificial intelligence spending and its hypothesized potential to overturn established business models. ServiceNow (NOW) fell sharply despite beating earnings expectations, while Oracle (ORCL) and Salesforce (CRM) also declined. The software-focused IGV ETF dropped into bear market territory, now more than 20% below its recent high, highlighting how quickly sentiment has shifted in a segment that had previously benefited from AI optimism. While AI remains a long-term growth driver, it is no longer delivering consistently positive surprises, making earnings quality and diversification increasingly important as valuation expansion becomes harder to sustain.
There were notable bright spots on Thursday: Meta (META) shares surged after the company delivered strong earnings. Meta posted 24% revenue growth driven by advertising and issued an upbeat sales forecast. Investors appeared comfortable with Meta’s aggressive AI investment plans, even as capital expenditures are set to nearly double from last year, signaling confidence in its ability to fund growth while maintaining profitability. Caterpillar (CAT) also added to the positive side of earnings season with a solid quarterly beat.
The US government has once again failed to clear a critical budgetary hurdle, and is barreling towards another government shutdown. The Trump administration has been at the helm during two of the US’s longest-running government shutdowns, and investors fear a third record-setting federal government closure could kick off another period of limited or no official data with which to gauge the American economic engine.
"Doctor Copper" signals everything's okay
Outside equities, copper prices reached an all-time high, tangentially reaffirming expectations for resilient global economic activity. Futures climbed more than 8% to $6.45 a pound, extending a strong multi-month rally. Copper mining stocks and related ETFs posted outsized gains, with several major producers up 35-50% in January alone, marking one of the strongest periods for the sector in more than a decade.
Dow Jones daily chart
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
