The S&P 500 gave up opening gains, and the Nasdaq fell 2.52% Thursday, as investors assessed mega-cap tech results that pointed to another surge in AI spending, while the Federal Reserve held rates steady as widely expected.

Microsoft dropped 11.3%, weighing on the Nasdaq, as its cloud revenue failed to impress, stoking fears the hefty outlays behind its OpenAI alliance are not translating into monetization fast enough.

Also weighing on the index was a drop in software stocks, after SAP's cautious cloud outlook while ServiceNow's post-earnings slide of nearly 10% deepened investor concerns that traditional software firms risk losing ground to rising competition from AI players.

Salesforce was down 5.6%, while Adobe and cloud security firm Datadog lost 3.1% each.

Meta jumped almost 8% as the social media giant paired an upbeat revenue forecast with a 73% jump in this year's capex budget. Tesla was down 1% despite outlining plans to more than double its capital expenditure to a record level.

"The big tech names and earnings are going to be the major narrative, especially after we got through yesterday's Fed meeting," said Adam Turnquist, chief technical strategist for LPL Financial.

"What's the demand look like on AI? How's that spend looking from a quality perspective in terms of the actual return on investment? I think it's going to be a show me the money story for AI."

The latest results from three of the so-called "Magnificent Seven" companies suggest investors are willing to overlook massive AI expenditures so long as they expect them to yield tangible returns.

The group — which accounts for about a third of the S&P 500's market value — has powered much of the rally in U.S. equities and remains priced at a premium.

Apple was down 0.2% ahead of its results after markets close. The broader tech index dropped 3%.

At 10:51 a.m. EST, the Dow Jones Industrial Average fell 289.49 points, or 0.59%, to 48,726.11, the S&P 500 lost 96.62 points, or 1.38%, to 6,881.41, and the Nasdaq Composite lost 600.98 points, or 2.52%, to 23,258.47.

EARNINGS CHUG ON

In other notable earnings, Caterpillar and Mastercard added 3.5% and 0.7%, respectively, after posting a higher profit for the quarter.

The industrial stocks index gained 1%.

Defense contractor Lockheed Martin rose almost 8% after forecasting 2026 earnings above Wall Street expectations.

Southwest Airlines' shares advanced 12.4% after the airline forecast a stronger-than-expected annual profit.

Bellwether IBM jumped 6% after beating estimates in its fourth-quarter earnings.

The S&P's energy index added 2%, tracking higher oil prices on rising concerns over a potential U.S. military attack on Iran.

FED DECISION AS EXPECTED

Domestic data showed initial jobless claims fell slightly to 209,000 last week, pointing to a relatively low level of layoffs, although lackluster hiring led to continued worries over the labor market.

Chair Jerome Powell said on Wednesday the Fed would remain data-dependent, with upside risks to inflation and downside risks to employment diminishing.

Traders kept rate-cut expectations intact, pricing the first rate reduction for June, according to CME's FedWatch tool.

Meanwhile, U.S. President Donald Trump and Senate Minority Leader Chuck Schumer attempted to negotiate new restrictions on federal immigration agents, The New York Times reported, potentially averting a government shutdown ahead of Friday's midnight deadline.

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 16%, MP Materials was down 10%, while Critical Metals and United States Antimony dropped over 14% each.