Wall Street's main indexes finished lower Thursday with technology-heavy Nasdaq leading declines as investors were rattled by the latest earnings reports and worried about whether hefty spending on artificial intelligence would pay off for mega-cap tech companies.

Microsoft shares slumped after the software giant's cloud revenue failed to impress and stoked fears the hefty outlays for its OpenAI alliance were not reaping returns fast enough.

It was a big drag on the S&P 500 while other software stocks also tumbled with SAP's U.S.-listed shares tumbling after its cautious cloud outlook and ServiceNow shares falling sharply as its earnings report added to the gloom.

"Microsoft disappointed and there are some genuine concerns that AI investments will eat the software companies' lunches," said John Praveen, managing director & Co-CIO, Paleo Leon in Princeton, New Jersey.

Investors are trying to "reduce exposure to stocks and play it safe" against a backdrop of broader uncertainties including who the Federal Reserve's next chair will be and how many interest rate cuts it will make, according to Praveen who also cited political uncertainties around Washington's stance in relation to Iran and Greenland and the potential for a U.S. government shutdown.

"There are all sorts of storm clouds in the background," he said.

According to preliminary data, the S&P 500 lost 10.41 points, or 0.15%, to end at 6,967.62 points, while the Nasdaq Composite lost 179.39 points, or 0.75%, to 23,678.05. The Dow Jones Industrial Average rose 21.05 points, or 0.04%, to 49,036.65.

Software companies caught up in the selloff included Salesforce, Oracle, Adobe and cloud security firm Datadog.

For some software companies, such as ServiceNow and Salesforce, the fear is that "AI is going to disrupt their business a little bit," if AI can be used "to supplant some of their services," said Jay Hatfield, CEO and CIO of Infrastructure Capital Advisors in New York.

"It doesn't really matter, what the reality is or isn't. Those stocks are getting hit pretty hard," he said.

Among megacap companies, Tesla shares went into reverse after the electric-vehicle maker outlined plans to more than double capital expenditures to a record level.

Among the S&P 500's 11 major industry sectors, technology was the biggest laggard. Communications services was one of the strongest however, as Facebook parent Meta rallied sharply. Bucking the trend among megacaps, the social media giant paired an upbeat revenue forecast with a 73% jump in this year's capex budget.

In other positive news, technology bellwether IBM shares rose after its fourth-quarter earnings beat estimates.

The energy index rose sharply on the back of surging oil prices, with Brent crude futures hitting a near six-month high on rising concerns about a possible U.S. military attack on Iran.

In other notable earnings, Caterpillar and Mastercard rose after both posted a higher profit for the quarter.

Defense contractor Lockheed Martin shares rallied after it forecast 2026 earnings above Wall Street expectations. Southwest Airlines shares soared after the carrier forecast a stronger-than-expected annual profit, putting it ahead in S&P 500 percentage gains.

Among other stock moves, rare-earth miners slid following a report the Trump Administration would step back from critical mineral price floors.

USA Rare Earth fell along with MP Materials, Critical Metals, and United States Antimony.