U.S. stocks plunged Thursday, with the Nasdaq composite surrendering more than 1.5% as concerns over artificial intelligence disruption resurfaced, hammering tech shares and dragging the Dow Jones Industrial Average down over 600 points below 50,000. The broad selloff, led by software companies and publishers, reflected investor anxieties that AI could upend established business models across multiple sectors.

The Dow fell about 1.3%, or more than 600 points, to retreat below the 50,000 milestone, while the S&P 500 dropped roughly 1.2%. Tech-heavy Nasdaq bore the brunt, sliding over 1.5% amid renewed selling in AI-vulnerable names. Treasury yields declined and crude-oil prices tumbled about 3%, underscoring the risk-off mood ahead of Friday’s inflation data.

Software Sector Under Siege

Cisco Systems shares plunged over 11% despite beating quarterly earnings estimates, as a gloomy profit outlook overshadowed AI-driven sales growth from hyperscalers. The networking giant reported fiscal second-quarter revenue of $15.3 billion, up 10% year-over-year and above the $15.1 billion expected, with adjusted EPS of $0.80 topping forecasts of $0.74. Yet full-year guidance for EPS of $3.00 to $3.08 and revenue of $61.2 billion to $61.7 billion fell short of Wall Street hopes for $3.12 EPS and $62.1 billion in sales. Cisco CFO Mark Patterson noted, “We see strong, broad-based demand for our technology solutions and remain focused on capturing the significant opportunities we see ahead.” Yahoo Finance

AppLovin tumbled as much as 18% even after strong Q4 results, with revenue surging 66% to $1.66 billion and EPS of $3.24 exceeding estimates. CEO Adam Foroughi dismissed AI threats, stating, “There’s a real disconnect between market sentiment and the reality of our business.” Investors remained unconvinced, amid fears AI could erode ad tech dominance. Wall Street Journal

The iShares Expanded Tech-Software Sector ETF slumped 4.2%, now down 32% from recent highs, as the “AI Scare Trade” spread from software to financials, logistics, and beyond. Hedge funds reportedly pocketed $24 billion shorting software stocks year-to-date, per CNBC reports echoed on X.

Megacaps Join the Fray

Big Tech followed suit: Nvidia and Microsoft each lost over 1%, while Meta, Amazon, and Apple posted steeper declines. Palantir dropped 6%, exacerbating a weekly meltdown in AI-exposed names. The rotation out of growth stocks gained steam, with value sectors like utilities, materials, and cyclicals attracting inflows—Walmart rose 3%, Boeing 2%.

January’s jobs report, adding 130,000 payrolls against expectations of 65,000 and dropping unemployment to 4.3%, bolstered the economy but dimmed rate-cut hopes. Bank of America economists said the data “vindicates our view that the Fed won’t cut under Powell.” Upcoming CPI, projected at 2.5% annual growth, looms large. Yahoo Finance

Regulatory pushback added fuel: Senators introduced bills curbing data center power usage amid AI’s electricity surge. Didi Caldwell of Global Location Strategies warned, “The system is ill-equipped to address the dramatic increase in demand created by AI data centers.” Yahoo Finance

Global Ripples and Sector Shifts

International markets mixed: South Korea’s Kospi hit records before Europe slumped. Germany’s DAX climbed 1.3% on Siemens’ AI gains. Oil neared $70 on Iran tensions, gold held above $5,000 despite rate-cut skepticism.

On X, traders noted the indiscriminate AI risk pricing: “The AI disruption narrative isn’t just hitting AI plays—it’s cannibalizing the entire software sector,” posted @0xCaptainLevi. @GlobalMktObserv highlighted the “AI Scare Trade” crushing sectors daily, with no buyers defending dips.

Upcoming earnings from Applied Materials, Airbnb, and Coinbase could intensify scrutiny on AI winners versus losers. Charlie Anderson at UBS Wealth Management observed, “Stocks are a bit tired after a very strong start to 2026. Some of the market’s biggest tech stocks are getting hit after reporting earnings, which shows that investor expectations have risen.” Bloomberg

Disruption Fears Reshape Valuations

The selloff marks a pivot: AI infrastructure thrives—Nvidia briefly lifted S&P—but legacy software faces obsolescence risks. Anthropic’s Claude update triggered $285 billion in legal tech losses, per X posts. Thomson Reuters fell 18%, RELX 14%.

Jefferies on AppLovin: Gaming names sell off as “AI risk is being applied indiscriminately.” Morgan Stanley stayed bullish despite the plunge. Investors now parse AI’s dual edge: hyperscaler demand versus workflow replacement in services.

As rotation accelerates, the question persists: Is this a healthy correction post-hype, or the onset of a broader tech reset? Markets await CPI clarity amid earnings season’s AI litmus test.