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

AI heavyweights Nvidia and Microsoft each fell almost 3 percent. Alphabet dropped 1.2 percent ahead of its report on Wednesday, while Amazon declined 1.8 percent ahead of its Thursday report.

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's attention on Tuesday turned to technology companies that could face steeper competition and lower margins as a result of AI. 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, Datadog and Adobe lost about 7 percent, Synopsys and Atlassian ‍fell about 8 percent, and Intuit slumped 11 percent.

AI data firm Palantir bucked the trend, rallying almost 7 percent after strong quarterly results late on Monday. The S&P 500 software and services index fell 3.8 percent, down for a fifth consecutive day.

"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 US-listed shares plummeted nearly 15 percent.

Rival Eli Lilly fell 3.9 percent, while obesity drugmaker Structure Therapeutics lost 6.75 percent.

Walmart climbed about 3 percent to become the first bricks-and-mortar retailer ever to hit US$1 trillion in stock market value.

Advanced Micro Devices fell 1.7 percent ahead of its quarterly report after the bell.

The S&P 500 fell 0.8 percent, to 6,917, the Dow fell 0.3 percent, to 49,240, while the Nasdaq fell 1.4 percent, to 23,255. (Reuters)