Bold opening: The market is splitting the AI hype from real-world results, and the divide could redefine who profits and who doesn’t. But here’s where it gets controversial: the path to AI-driven profits remains murky, even for big tech players.
US stocks dropped on Thursday as investors continued to separate AI losers from AI winners. The S&P 500 slipped 1.1% after briefly flirting with its all-time high earlier in the session. The Dow Jones Industrial Average fell about 569 points, or 1.1%, while the Nasdaq Composite slid roughly 1.5%.
AppLovin tumbled 18.3% despite beating earnings expectations for the latest quarter. Like many software firms, it faces concerns that AI could undercut its current business model or permanently alter how users access the internet. CEO Adam Foroughi pushed back, telling analysts that the company is thriving and that there’s a clear disconnect between investor sentiment and the company’s actual performance. Nevertheless, AppLovin’ shares were already down about 32% for the year entering today.
Cisco Systems dropped 11.6% even though it exceeded profit and revenue estimates last quarter. The company signaled that profit per dollar of revenue may be lower in the current quarter, which analysts interpreted as a sign that rising prices for computer memory—driven by AI demand—could squeeze margins.
Analysts noted that the big question is whether heavy AI spending will translate into meaningful profits and productivity gains that justify the investments. In the meantime, firms serving customers with generous AI budgets saw gains. Equinix surged 12.5% even though quarterly results missed expectations; it raised 2026 guidance well above consensus, with CEO Adaire Fox-Martin saying demand for its data-center solutions is at unprecedented levels as the world moves further into AI.
Outside the tech sector, McDonald’s rose 2.2% after delivering stronger-than-expected quarterly earnings. The company credited value-focused moves, including price reductions on some U.S. combo meals, with supporting results.
Walmart gained about 2.9%, helping lift the S&P 500 as it erased earlier-week losses following a report that overall U.S. retail spending had stalled in December.
In the bond market, Treasury yields fell after data showed slightly more U.S. workers filed for unemployment benefits than economists anticipated. The number, though higher than the prior week, still suggested a cooling in layoffs and followed a surprisingly strong job-market report published the day before.
A healthier labor market could persuade the Federal Reserve to hold off on rate cuts for now, even as President Trump has repeatedly urged lower rates. Lower rates can support growth but risk intensifying inflation, so the Fed faces a tricky balancing act.
All eyes now turn to Friday’s inflation report for the heavy-weight evidence about the economy’s trajectory. Economists anticipate a dip in core consumer inflation to around 2.5% from 2.7% in December. Separately, data on housing showed sales of previously occupied homes fell more than expected, adding pressure on yields.
The 10-year Treasury yield slipped to about 4.13% from 4.18% late Wednesday.
International markets showed mixed moves: South Korea’s Kospi jumped about 3.1% on strength in Samsung Electronics and other tech names, while Europe and other Asian markets were more subdued. Hong Kong’s Hang Seng fell 0.9%, and France’s CAC 40 edged up 0.3%.
Thought-provoking questions to consider: Are AI-driven efficiencies enough to sustain long-term profits for software and hardware providers, or will the costs of AI adoption erode margins even further? How should investors weigh near-term volatility against potential transformative gains in AI infrastructure and services? Share your take in the comments.
