US Stocks Drop Sharply Thursday        02/12 15:35

   U.S. stocks fell sharply Thursday as the market punished companies seen as 
potential losers from artificial-intelligence technology.

   NEW YORK (AP) -- U.S. stocks fell sharply Thursday as the market punished 
companies seen as potential losers from artificial-intelligence technology.

   The S&P 500 sank 1.6% for its second-worst day since Thanksgiving, though 
it's still near its all-time high set late last month. The Dow Jones Industrial 
Average dropped 669 points, or 1.3%, and the Nasdaq composite fell 2%.

   AppLovin lost nearly a fifth of its value and tumbled 19.7%, even though it 
reported a stronger profit for the latest quarter than analysts expected. Like 
other software companies, it's come under pressure from worries that AI may 
undercut its business while fundamentally changing how people use the internet.

   AppLovin CEO Adam Foroughi pushed back on the concerns, saying in a 
conference call with analysts that indicators show his company is doing well. 
"There's a real disconnect between market sentiment and the reality of our 
business," he said.

   Its stock nevertheless widened its loss for the young year so far, which 
came into the day at 32.2%.

   Cisco Systems dropped 12.3% despite likewise topping analysts' expectations 
for profit and revenue last quarter. The tech giant indicated that it may make 
less profit off each $1 of revenue during the current quarter than it did in 
the past quarter.

   Analysts said that could be an indicator of higher prices for computer 
memory that everyone is having to pay amid the rush driven by AI.

   More broadly, questions are rising about whether businesses that are 
spending heavily on AI will end up seeing high-enough profits and productivity 
to make the investments worth it.

   The AI worries have hit software stocks particularly hard, but they're 
spreading to other industries and other markets. For bonds, for example, "AI 
disruption risk" looks set to knock down prices, even if the threat still looks 
hazy, according to strategists at UBS.

   "The timing of AI disruption remains indeterminate, and the fog of 
uncertainty is unlikely to dissipate quickly," the strategists led by Matthew 
Mish wrote in a report.

   They expect the AI risk to lead to an increase in defaults in the junk-bond 
and other low-rated markets. That could hurt even strong, financially stable 
companies by making it more expensive for them to borrow, including the Big 
Tech businesses that have been borrowing heavily to pay for their AI 
investments. That spending has been a major reason the AI frenzy has gotten as 
big as it has.

   In a less likely but very damaging scenario, such knock-on effects "could be 
significant, potentially undercutting capital spending, investment plans, and 
ultimately the AI boom itself," according to the UBS strategists.

   In the meantime, some of the companies serving customers with huge AI 
budgets are benefiting.

   Equinix, for example, jumped 10.4% even though the digital infrastructure 
company's results for the latest quarter fell short of analysts' expectations. 
It gave financial forecasts for 2026 that topped analysts' expectations, and 
CEO Adaire Fox-Martin said that "demand for our solutions has never been 
higher."

   The company's data centers are helping to power the world's move into AI.

   Outside of tech, McDonald's rose 2.7% after reporting a stronger profit for 
the latest quarter than analysts expected. The restaurant chain credited moves 
to improve its value and affordability, including cutting prices on some U.S. 
combo meals in September.

   Walmart's rally of 3.8%, meanwhile, was the strongest single force pushing 
upward on the S&P 500. It erased losses from earlier in the week after a report 
said spending at U.S. retailers overall stalled in December.

   All told, the S&P 500 fell 108.71 points to 6,832.76. The Dow Jones 
Industrial Average dropped 669.42 to 49,451.98, and the Nasdaq composite sank 
469.32 to 22,597.15.

   In the bond market, Treasury yields fell as investors looked for safer 
places to park their cash. A report also said slightly more U.S. workers filed 
for unemployment benefits last week than economists expected.

   Still, the number was lower than the prior week's, which is a signal that 
the pace of layoffs may be improving. It also followed a surprisingly strong 
report on the job market from Wednesday, which said the nation's unemployment 
rate improved last month.

   A strengthening job market could push the Federal Reserve to hold interest 
rates steady and keep its cuts on pause, even if President Donald Trump keeps 
loudly and aggressively calling for lower rates. While lower rates can give the 
economy a boost, they can also worsen inflation.

   It all raises the stakes for Friday's upcoming report on inflation at the 
U.S. consumer level. Economists expect it to show inflation slowed to 2.5% last 
month from 2.7% in December.

   A separate report on Thursday said that sales of previously occupied homes 
slumped last month by more than economists expected, which also weighed on 
yields.

   The yield on the 10-year Treasury fell to 4.10% from 4.18% late Wednesday.

   In stock markets abroad, South Korea's Kospi rushed 3.1% higher thanks to 
gains for Samsung Electronics, SK Hynix and other tech stocks.

   The moves were more modest in other Asian markets and in Europe. Hong Kong's 
Hang Seng fell 0.9%, and France's CAC 40 rose 0.3%.