Wall Street tumbled on Tuesday as investors worried about AI creating more competition for software makers, keeping investors on edge ahead of quarterly reports from Alphabet and Amazon later this week.

Nvidia dropped 3.8% and Microsoft fell 3.2%. Alphabet, which reports its results on Wednesday, lost almost 2%, while Amazon declined 3% ahead of its report on Thursday.

Investors in recent months have become pickier about AI-related stocks, looking for companies generating measurable returns from their outsized investments in the new technology.

Wall Street Focused on Tech Companies

Wall Street’s attention on Tuesday turned to technology companies that could face steeper competition and lower margins. One catalyst driving those concerns was Anthropic’s launch of a legal tool for its Claude AI chatbot.

“We’re looking at a lot of software names that are seen as companies that may well be disrupted when we start to see the advancement of artificial intelligence. We’re seeing a lot of software companies across the spectrum get hit,” said Art Hogan, chief market strategist at B. Riley Wealth.

Salesforce, Adobe, Synopsys, Datadog <DDOG.O and Atlassian each fell around 8%, while Intuit slumped 11%.

AI data firm Palantir bucked the trend, rising 7% following strong quarterly results late on Monday.

The S&P 500 software and services index dropped 4.5%, on pace to log its fifth consecutive day of losses.

“We’ve got an expensive market and expectations are really high. Many areas, especially around AI, are priced for perfection. That’s just got us in a skittish environment,” said John Campbell, senior portfolio manager, Allspring Global Investments.

Healthcare stocks came under pressure after Wegovy maker Novo Nordisk warned that it expected a steep decline in annual sales. The company’s U.S.-listed shares plummeted 14%.

Rival Eli Lilly fell 3.8%, while other obesity drugmakers Viking Therapeutics and Structure Therapeutics fell 4.2% and 7.4%, respectively.

Walmart became the first retailer ever to hit $1 trillion in market valuation, with its shares rising 2.3%.

Advanced Micro Devices fell 3.5% ahead of its quarterly report after the bell.

Walt Disney named theme parks head Josh D’Amaro as CEO, placing a longtime insider at the helm and ending succession uncertainty. Its shares fell 1%.

PayPal dropped 20% after it forecast 2026 profit below estimates.

The S&P 500 was down 1.46% at 6,874.52 points.

The Nasdaq declined 2.17% to 23,081.41 points, while the Dow Jones Industrial Average was down 1.03% at 48,897.42 points.

Earnings Deluge

With one quarter of the S&P 500 set to report quarterly results this week, analysts expect companies to have grown their earnings nearly 11% in the December quarter, up from an estimate of about 9% at the start of January, according to LSEG data.

Pfizer shares fell 3.8% despite posting fourth-quarter profit above estimates, while Merck rose 2.5% after quarterly results.

PepsiCo shares gained 3.8%, with the brand announcing a price cut on core brands such as Lay’s and Doritos.

Meanwhile, legislation to end a U.S. government shutdown narrowly cleared a procedural hurdle in the House of Representatives, setting up a vote on final passage later in the day.

The partial shutdown has postponed releases of key jobs data on Friday along with the JOLTS report, originally expected on Tuesday.

Declining stocks outnumbered rising ones within the S&P 500 by a 1.1-to-one ratio.

The S&P 500 posted 78 new highs and 26 new lows; the Nasdaq recorded 185 new highs and 292 new lows.

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(Reporting by Pranav Kashyap and Twesha Dikshit in Bengaluru, and by Noel Randewich in San Francisco; Editing by Maju Samuel and Aurora Ellis)