Wall Street indexes fell sharply on Thursday, with the technology-heavy Nasdaq slumping 2 percent, as investors intensified their sell-off of tech shares and fled transport stocks amid worries about artificial intelligence disruption.

The S&P 500 and the Dow sank more than 1 percent as investors ⁠also digested the latest jobs data and awaited the January inflation report, due on Friday.

After starting the day higher, indexes started selling off in morning trading as investors fled from riskier sectors and placed more defensive bets such as utilities, consumer staples and real estate.

At a time when investors have been stressed about the impact AI would have on competition, a less-than-impressive quarterly update from Cisco Systems helped to sour the market on technology stocks broadly.

Transportation companies also got caught up in worries about AI disruption.

"The broader narrative within the market is what sectors and industries can increase productivity from AI investments, and on the flip side, what industries are going to be disrupted by AI," said Jack Herr, primary investment analyst at GuideStone Funds.

"We see this as a 'prove it' year for AI. We need to start seeing some return on investments."

Cisco was the fifth-biggest drag on the S&P 500, and Dizard said its selloff likely encouraged investors to exit highly liquid megacaps such ⁠as Apple, Nvidia, Broadcom and Amazon.com.

Earnings season has revived investor worries about ambitious capital spending this year, with Amazon, Google, Meta and Microsoft collectively expected to spend around US$650 billion in the race for AI dominance.

The S&P 500 software index fell 1.7 percent for its second straight loss, erasing most of the index's bounce-back from last week's drubbing.

Its biggest percentage decliner during the session was AppLovin, which tumbled 19.7 percent after it reported fourth-quarter results. Shares in the marketing platform have come under pressure this year due to intense competition.

The Nasdaq fell 2 percent, to 22,597, the S&P 500 fell 1.6 percent, to 6,832, and the Dow fell 1.3 percent, to 49,451. (Reuters)