Stocks dropped on Thursday as investors began to worry about the negative side of the artificial intelligence buildout, which threatens to disrupt the business models of whole industries and raise unemployment.
The Dow Jones Industrial Average shed 669.42 points, or 1.34%, to end at 49,451.98. The index was led lower by Cisco Systems, which slid 12% after the maker of networking hardware such as switches and routers issued disappointing guidance for the current quarter. The S&P 500 dropped 1.57% and closed at 6,832.76, while the Nasdaq Composite lost 2.03% and settled at 22,597.15.
Certain pockets of the stock market have been hit this year on the release of AI tools that could replicate their businesses — or at least eat away at their profit margins.
Financial stocks such as Morgan Stanley came under pressure on fears that AI would disrupt wealth management businesses, while shares of trucking and logistics companies such as C.H. Robinson plummeted 14% on fears that AI would streamline freight operations, thereby weighing on certain revenue lines.
AI disruption fears even spread to the real estate sector, hurting stocks like CBRE and SL Green Realty, on the notion higher unemployment will hit demand for office space.
Software stocks — a group that has been plagued by disruption worries in recent weeks — extended their year-to-date losses during the trading day. Palantir Technologies shares pulled back almost 5%, putting its retreat this year at more than 27%. Shares of Autodesk dropped nearly 4%, and the stock's year-to-date slide is now about 24%. The iShares Expanded Tech-Software Sector ETF (IGV) fell nearly 3%. The fund now stands about 31% below its recent high after first entering a bear market last month.
"AI, which was the one thing that was driving these stocks to parabolic heights and to multiples that were getting extreme — not overwhelmingly extreme — now is the one thing that's holding them back," said Jay Woods, chief market strategist at Freedom Capital Markets.
A sell-off in silver, which has been a hot trade amongst the retail investor crowd this year, added to the risk-off mentality Thursday. Silver futures tumbled 10%.
Investors sought safety in more defensive areas of the market. Walmart and Coca-Cola shares were up 3.8% and 0.5%, respectively. Consumer staples and utilities led the gains among S&P 500 sectors, rising more than 1% each. That move led consumer staples to a fresh record close.
Stocks ended the previous session lower after earlier rallying off the back of a strong jobs report. Enthusiasm for the data waned as economists doubted it could be the start of a trend higher in payrolls, especially when accompanying revisions in the report indicated there was zero job growth in the back half of 2025.
Traders now brace for a key inflation report Friday. Economists polled by Dow Jones are expecting January CPI to show a 0.3% increase for both headline and core, which excludes food and energy prices.
"CPI is a little bit less important now that we got the good jobs number, because it already allows the Fed to kind of pause for a substantial amount of time," said Ross Mayfield, investment strategist at Baird. "If CPI came in hot, you'd have a couple of months of data to kind of get a sense of the trend before the Fed actually has to make a hard call."
On the flip side, if the data were to come in light, the strategist anticipates that Friday could be a risk-on kind of day, though "it would have to be a pretty, pretty brutal number to the upside to really impact equity markets and fed fund futures," he added.
