Dec 12 (Reuters) - The S&P 500 and the Nasdaq slipped on Friday as Broadcom's latest results added to concerns about an AI-fueled bubble, dampening optimism stoked by the Federal Reserve's less-hawkish-than-expected signals on 2026 rate cuts.
Broadcom(AVGO.O), slid 8.4% after the chipmaker warned of slimmer future margins on its AI system sales, despite projecting strong quarterly revenue. This sharpened worries about the profitability of surging AI investments.
Other chip stocks, such as Advanced Micro Devices (AMD.O), lost 1% and a broader chips index (.SOX), fell 1.5% a day after Oracle (ORCL.N), unveiled a weak forecast.
Shares of the cloud company fell 2.3% after logging their biggest daily drop since January in the previous session.
"Given the fact that 'Big Tech' has been at the vanguard of the rally since October 2022, there's a danger that it may become the catalyst for broad-based selling," said David Morrison, senior market analyst at Trade Nation.
At 9:47 a.m. ET, the Dow Jones Industrial Average (.DJI), rose 154.56 points, or 0.31%, to 48,856.46, the S&P 500 (.SPX), lost 12.58 points, or 0.18%, to 6,888.92 and the Nasdaq Composite (.IXIC), lost 119.55 points, or 0.51%, to 23,478.83.
Nine of the 11 S&P 500 sectors edged higher, although heavyweight tech stocks (.SPLRCT), lost 1%, pulling down the overall index.
Despite the gloomy outlook, the S&P 500 (.SPX), the Dow (.DJI), and the Russell 2000 (.RUT), all closed at record highs on Thursday and were on track for weekly gains after the Fed trimmed borrowing costs and delivered a less hawkish outlook than investors had feared.
The biggest gains were in the blue-chip and small-cap indexes, underscoring a shift into value stocks away from the mega-cap names. The Russell 2000 has outpaced the S&P 500 for much of this quarter as investors rotate out of AI-fueled growth names and into value-heavy sectors such as healthcare (.SPXHC).
"There's plenty of cash on the sidelines, the consumer is not as dire as many proclaimed, and the Fed is easing, not tightening. Plus, many sectors and stocks are well rested and ready to run," said Robert Edwards, chief investment officer, Edwards Asset Management.
Meanwhile, policymakers who voted against the Fed's this week said they are worried that inflation remains too high to warrant lower borrowing costs, particularly given the lack of recent official data about the pace of price increases.
Still, traders are pricing in a total of 50 basis points of rate cuts by the end of 2026 – more than the Fed signaled on Wednesday.
Among others, Nvidia (NVDA.O), edged up 0.3% after a report said the company is evaluating an increase in H200 chip production to meet robust demand from China.
Lululemon Athletica <LULU.O> jumped 12% after the apparel maker raised its annual profit forecast and said that CEO Calvin McDonald was leaving the company.
In other single-stock moves, U.S.-listed shares of cannabis companies rose after a report said President Donald Trump was looking to cut restrictions on marijuana through a planned order. Canopy Growth added 23%, and Tilray Brands climbed 30%.
Advancing issues outnumbered decliners by a 1.55-to-1 ratio on the NYSE and by a 1.1-to-1 ratio on the Nasdaq.
The S&P 500 posted 24 new 52-week highs and one new low, while the Nasdaq Composite recorded 66 new highs and 37 new lows.
Reporting by Johann M Cherian and Pranav Kashyap in Bengaluru; Editing by Tasim Zahid
