Nasdaq called lower, Dow Jones higher as AI consequences eyed

• Legal and software stocks plunged, with Thomson Reuters, LegalZoom, and others dropping 7-17%, while the US software index fell 4.6% in its sixth consecutive decline, returning to April 2025 levels
• Microsoft has declined 24% from its late October peak, and the nine worst-performing S&P 500 stocks year-to-date are all in software and related services, each down 25% or more
• AMD warned of weaker Q1 sales after the bell, adding pressure to AI-related stocks as markets shift from 'AI euphoria' toward concerns about disruption to existing business models

Market Summary: AI Disruption Weighs on Tech Stocks

Market Performance:

US futures showed a mixed outlook on February 4, 2026, with Dow Jones futures up 0.2% and S&P 500 futures up 0.1%, while Nasdaq futures pointed 0.2% lower. The previous session saw the tech-heavy Nasdaq drop 1.4% to 23,255, the S&P 500 fall 0.8% to 6,918, and the Dow slip 0.3% to 49,241.

Key Catalyst:

Anthropic's launch of a new AI automation tool for legal work triggered significant sector disruption. Legal and financial data firms were hit hard, with Thomson Reuters, LegalZoom, ServiceNow, Palo Alto Networks, Cognizant, and Datadog declining between 7-17%. The US software index plunged 4.6%, marking its sixth consecutive decline and returning to April 2025 levels.

Sector Impact:

The software and related services sectors dominated losses, with the nine worst-performing S&P 500 companies year-to-date all from these sectors, each down 25% or more. Microsoft fell 2.9% and is now down 24% from its late October peak. After hours, AMD further pressured the AI trade by warning of weaker first-quarter sales.

Market Implications:

Deutsche Bank's Jim Reid noted the market shift "from AI euphoria towards more differentiation between companies, and growing concern about its disruption to existing business models." Despite Nvidia CEO Jensen Huang defending the software industry's future, investor sentiment reflects mounting concerns about AI's disruptive impact on traditional business models.

Upcoming Catalysts:

Earnings expected from Eli Lilly, AbbVie, Novartis, Novo Nordisk, Uber, Alphabet, and Qualcomm.