(Updates prices to late afternoon)

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Indexes down: Dow 0.11%, S&P 500 0.52%, Nasdaq 1.25%

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Gainers include Meta, IBM ( IBM ), SouthWest ( LUV ), Lockheed

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Microsoft ( MSFT ) drags most in software industry sell off

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Tesla drop after quarterly results

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Caterpillar ( CAT ) advances on reporting higher Q4 profit

By Sinéad Carew and Pranav Kashyap

Jan 29 (Reuters) -

Wall Street's main indexes fell on 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 ( MSFT ) slumped 12% after the software giant's

cloud revenue failed to impress and stoked fears the hefty

outlays behind its OpenAI alliance were not reaping returns fast

enough.

It was the ​biggest drag on the S&P 500 while other software

stocks also tumbled with SAP's cautious cloud outlook

sending its U.S. shares down ‍more than 15% and ServiceNow ( NOW )

shares down more than 11% as its earnings report added

to the ⁠gloom.

"Microsoft ( MSFT ) 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 related to Washington's stance

against Iran and Greenland and the potential for a U.S.

government ⁠shutdown.

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

said.

At ‍2:20 p.m. the ​Dow Jones Industrial Average

fell 52.98 points, or 0.11%, to 48,962.62, the S&P 500

lost 36.55 points, or 0.52%, to 6,941.48 and the Nasdaq

Composite lost 297.39 points, or 1.25%, to 23,560.06.

Other software companies under pressure besides Microsoft ( MSFT )

included Salesforce ( CRM ), ‍down 7% and Oracle, down 4%. Adobe

lost 3% and cloud security firm Datadog ( DDOG ) fell

8.8%.

Elsewhere among megacap companies,

Tesla

shares fell 2.4%, 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, down 2.8%. Communications

services was the biggest gainer, up more than 2% as Facebook

parent

Meta

jumped 10.3%, 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 ( IBM )

shares ​jumped about ‍3% after beating estimates in

its fourth-quarter earnings.

The energy index was the second biggest gainer up

1.9% 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 ( CAT ) and Mastercard ( MA )

added about 3% and 3.8%, respectively, after posting a

higher profit for the quarter.

Defense contractor Lockheed Martin ( LMT ) rose 6% after

forecasting 2026 earnings above Wall Street expectations.

Southwest Airlines ( LUV ) shares advanced 18.6% after the

carrier forecast a stronger-than-expected annual profit, making

it the S&P 500's biggest percentage gainer so far on Thursday.

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 ( USAR ) fell 11%, MP Materials ( MP ) was

down 8.5%, while Critical Metals sank 15.7% and United

States Antimony ( UAMY ) dropped over 14%.

Declining issues ​outnumbered advancers by a 1.08-to-1 ratio

on the NYSE where there were 524 new highs and 161 new lows. On

the Nasdaq, 1,765 stocks rose and 2,925 fell as declining issues

outnumbered advancers by a 1.66-to-1 ratio.

The S&P 500 posted 50 new 52-week highs and 19 new lows

while the Nasdaq Composite recorded 81 new highs ‍and 200 new

lows.