Alphabet falls nearly 8% after downbeat profits, heavy AI invest

Indexes: Dow up 0.47%, S&P 500 up 0.19%, Nasdaq down 0.07%

(Updates as of mid afternoon)

By Abigail Summerville and Shashwat Chauhan

The S&P 500 and the Dow increased on Wednesday, as investors started to brush off frustrating Alphabet profits and weighed the possibility of future interest rate cuts from the U.S. Federal Reserve.

Google-parent Alphabet dropped 7.3% after posting downbeat cloud profits development on Tuesday and allocating a higher-than-expected $75 billion investment for its AI buildout this year.

AI-related stocks showed signs of healing after being rocked last week following the skyrocketing appeal of an inexpensive Chinese synthetic intelligence design established by startup DeepSeek. Nvidia, which signed up one of the biggest losses, was up 3.3% on Wednesday.

"Ultimately, need is not going away for AI even with the DeepSeek news. They ´ re all going to need to spend more money which ´ s what the AI story has been. This is a fairly long cycle story," said Rob Haworth, senior financial investment strategist at U.S. Bank Asset .

Advanced Micro Devices, on the other hand, lost 8.2% after CEO Lisa Su said the company's current-quarter information center sales - a proxy for its AI earnings - would fall about 7% from the previous quarter.

On the data front, investors are expecting the January nonfarm payrolls report, expected to be released on Friday.

U.S. services sector activity all of a sudden slowed in January amid cooling need, assisting curb price development, a report from the Institute for Supply Management showed on Wednesday.

"There are some issues that the Fed may need to reduce faster, that the economy is slowing, but that ´ s really favorable news for the markets since they ´ re looking for those Fed rate cuts," Haworth said.

The next Federal Open Markets Committee conference remains in March, and while just 16.5% of traders expect a rate cut then, a bulk of traders prepare for setiathome.berkeley.edu a cut in June, according to CME's FedWatch Tool.

Richmond Fed president Thomas Barkin said the Fed was still leaning towards more rate cuts this year, but flagged uncertainty around the effect of brand-new tariffs, migration, policies and other efforts from U.S. President Donald Trump's administration.

At 2:00 p.m. ET (1900 GMT), the Dow Jones Industrial Average increased 207.53 points, or 0.47%, to 44,763.57, the S&P 500 gained 11.61 points, or 0.19%, to 6,049.49 and the Nasdaq Composite lost 12.91 points, or 0.07%, to 19,641.11.

Nine of the 11 S&P 500 sectors traded greater, with property and utility stocks leading the gains while communication services fell over 3%.

Shares of Apple slipped 1.2% as Bloomberg News reported that China's antitrust regulator was getting ready for a possible investigation of the iPhone maker.

Fiserv advanced 7.3% as the payments firm beat estimates for fourth-quarter earnings, helped by strong need in its banking and payments processing unit.

Markets also await developments on the tariffs front after Trump said on Tuesday he remained in no rush to speak with Chinese President Xi Jinping to attempt to pacify a new trade war between the nations.

The Cboe Volatility Index, known as Wall Street's fear gauge, dropped 6.3% to 16.1 today.

In business movers, FMC Corp plunged 32% after the agrichemicals producer projection first-quarter profits below quotes.

Johnson Controls leapt 12.5% as the building services business named Joakim Weidemanis as ceo and raised its 2025 earnings projection.

Advancing issues outnumbered decliners by a 2.62-to-1 ratio on the New York Stock Exchange, and by a 1.88-to-1 ratio on the Nasdaq.

The S&P 500 posted 31 new 52-week highs and 12 new lows while the Nasdaq Composite recorded 100 brand-new highs and 85 brand-new lows.

(Reporting by Abigail Summerville in New York City, Shashwat Chauhan and Sukriti Gupta in Bengaluru