US equity indexes closed mixed on Wednesday as a sell-off in big tech coincided with gains in cyclicals, reflecting a sector rotation amid concerns surrounding artificial intelligence plays.
The Nasdaq dropped 1.5% to 22,904.58, with the S&P 500 down 0.5% to 6,882.72 as technology, communication services, and consumer discretionary led decliners.
Software stocks declined sharply on renewed AI displacement fears triggered by Anthropic's Claude Legal Plugin release, which automates contract review and compliance workflows, CFRA, an independent research provider, told MT Newswires on Wednesday.
The S&P 500 software index's forward price-to-earnings ratio has contracted 17% year-to-date, a disproportionate reaction given limited evidence that AI tools are taking share from leading names, the note added.
In stocks with a market capitalization of more than $200 billion, the worst performers were from the tech peer group, including Advanced Micro Devices (AMD), Palantir Technologies (PLTR), and Oracle (ORCL), according to data compiled by Finviz.
Advanced Micro Devices reported higher Q4 adjusted earnings and revenue overnight. Still, its shares plunged 17%, among the worst performers on the S&P 500 and the Nasdaq.
AMD's Q4 results and Q1 outlook failed to reflect the potential incremental value from central processing unit shortages, leading to the recent stock sell-off, Wedbush Securities said in a Wednesday note. The results reflect "muted" growth from the company's artificial intelligence silicon products, according to the note.
Meanwhile, the Global X Artificial Intelligence & Technology ETF (AIQ), with net assets of $7.36 billion and investments in AI-related firms, slumped 3.3%, reflecting the market's current aversion to AI-related names. Similarly, the $407.2 billion Invesco QQQ Trust (QQQ), a tech-heavy exchange-traded fund offering exposure to the Magnificent-7 across technology and communication services sectors, dropped 1.8%.
In contrast, the Dow Jones Industrial Average rose 0.5% to 49,501.30, with energy, materials, and real estate topping the gainers.
In economic news, the Institute for Supply Management's US services index was unchanged at 53.8 in January, compared with expectations for a decline to 53.5 in a Bloomberg-compiled poll. The reading follows mixed results from regional measures.
The S&P Global US services index was revised higher to 52.7 in January from the 52.5 flash reading, versus expectations for no revision in a Bloomberg-compiled survey. The January index is now above the 52.5 reported in December.
ADP's monthly measure of private payrolls expanded by 22,000 in January, below expectations compiled by Bloomberg for a gain of 45,000. The January print followed a 37,000 increase in December, albeit the figure was downwardly revised.
"Job creation took a step back in 2025, with private employers adding 398,000 jobs, down from 771,000 in 2024," said Nela Richardson, chief economist at ADP. "While we've seen a continuous and dramatic slowdown in job creation for the past three years, wage growth has remained stable."
US Treasury yields were mixed, with the 10-year little changed at 4.28% and the two-year slipped 1.5 basis points to 3.56%.
Gold futures edged 0.6% higher to $4,964.6 per troy ounce, and silver futures jumped 4.3% to $86.92 per troy ounce.
West Texas Intermediate crude oil futures jumped 1.7% to $64.31 a barrel.
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