US STOCKS-Wall Street slides; fears of AI bubble and inflation send investors away

Updates prices to late afternoon

By Sinéad Carew and Johann M Cherian

Dec 12 (Reuters) - Wall Street's major indexes were lower on Friday as investors left technology for other sectors as Broadcom and Oracle fueled concerns about an AI-fueled bubble and rising U.S. Treasury yields added pressure after some policymakers spoke out against easing monetary policy.

Treasury yields rose after a group of Federal Reserve officials who voted against the central bank's interest rate cut this week voiced worries that inflation remains too high to warrant lower borrowing costs.

Broadcom AVGO.O shares fell 11.4% after the chipmaker warned of slimmer future margins, causing renewed concerns about the profitability of surging AI investments.

The report followed a nearly 11% sell-off in Oracle ORCL.N on Thursday after the cloud software company unveiled a weak forecast. Oracle shares were down another 4.8% on Friday even after it denied a Bloomberg report that its data centers for ChatGPT maker OpenAI were being delayed.

Friday's weakness was compounded by record closing highs for the S&P 500 and the Dow on Thursday and the prospect of an important labor market and inflation economic data due out in the week ahead, according to Anthony Saglimbene, chief market strategist at Ameriprise.

"It's not surprising that the market's selling off today after a pretty solid couple weeks," said Saglimbene, adding that following record closes, and with "some disruption in the AI theme right now, investors today are looking at some of the more defensive sectors."

The Labor Department's reports on non-farm payrolls, consumer inflation and retail sales data are due next week and may offer greater insight into the economy's health after the October government shutdown starved investors and policymakers of official data releases.

"The market is probably a little bit cautious on heading into those big numbers next week," said the strategist.

At 02:29 p.m., the Dow Jones Industrial Average .DJI fell 245.08 points, or 0.51%, to 48,458.93, the S&P 500 .SPX lost 76.84 points, or 1.11%, to 6,824.45 and the Nasdaq Composite .IXIC lost 386.13 points, or 1.63%, to 23,208.87.

Other chip stocks, including heavyweight AI leader Nvidia NVDA.O also were dragged down and the Philadelphia semiconductor index .SOX lost 4.8%.

Adding to stocks that had benefited from AI bets earlier this year but went in reverse on Friday were Sandisk SNDK.O, down 13.9% and leading S&P 500 percentage losses, and infrastructure companies such as CoreWeave CRW.O and Oklo OKLO.N, which tumbled between 8% and 10.5%.

Eight of the 11 S&P 500 sectors declined, led by heavyweight tech stocks .SPLRCT, which lost 2.6%. Defensive consumer staples .SPLRCS led the advancers with a 0.64% gain followed by materials .SPLRCM, up 0.14% and healthcare .SPXHC, up 0.07%.

Friday's losses looked set to erase weekly gains for the S&P 500 and the Nasdaq, while the Dow .DJI and the Russell 2000 .RUT held gains garnered after the Fed trimmed borrowing costs and delivered a less hawkish outlook than investors had feared on Wednesday.

Traders are pricing in a total of 50 basis points of rate cuts by the end of 2026, which is one more than the Fed signaled on Wednesday.

The biggest gains were in the blue-chip and small-cap indexes, highlighting a shift into other areas of the market, and away from the mega-cap names. The Russell 2000 has outpaced the S&P 500 for much of this quarter along with value-heavy sectors such as healthcare .SPXHC.

However on Friday, higher Treasury yields weighed on the smallcaps Russell 2000 index which fell 1%.

Lululemon Athletica <LULU.O> jumped 10.9% after the apparel maker raised its annual profit forecast and said that CEO Calvin McDonald was leaving the company.

But, Costco Wholesale COST.O shares were down 0.6% after it beat Wall Street estimates for first-quarter revenue and profit as consumers snapped up affordable essentials and nice-to-have items at its stores ahead of the crucial holiday season. It was the biggest percentage decliner in the staples sector.

Declining issues outnumbered advancers by a 2.36-to-1 ratio on the NYSE and by a 2.01-to-1 ratio on the Nasdaq.

The S&P 500 posted 32 new 52-week highs and four new lows while the Nasdaq Composite recorded 128 new highs and 87 new lows.

(Reporting by Sinéad Carew, Johann M Cherian and Pranav Kashyap in Bengaluru; Editing by Tasim Zahid and Aurora Ellis)

((sinead.carew@thomsonreuters.com))