S&P 500 Hits 7,000 Then Stumbles: Is the AI Boom Cooling?

The S&P 500 touched 7,000 for the first time in history on Wednesday. By Friday's close, it had given back those gains. The milestone moment lasted just days, overshadowed by a brutal reckoning in software stocks that left investors questioning whether the AI boom is starting to crack.

Last week's market action told two very different stories. While the broader index managed a 0.34% weekly gain, individual stocks swung wildly. Meta surged nearly 9% after crushing earnings expectations, while Microsoft tumbled over 8% despite solid results. The difference? Market perception of their AI investments.

The Great Software Selloff

Thursday delivered a reality check to software investors. Salesforce dropped 7%, ServiceNow plunged 10%, and cybersecurity darlings Palo Alto Networks and CrowdStrike fell over 4% and 5% respectively. The carnage wasn't about poor earnings—many companies beat expectations.

Instead, this represented a fundamental revaluation of Software-as-a-Service companies. Investors are compressing the price-to-earnings multiples they're willing to pay, questioning whether sky-high valuations can be sustained. Microsoft's10% post-earnings drop on Thursday didn't help sentiment.

The irony? While AI fears crushed cybersecurity stocks, artificial intelligence actually enhances cyber defense capabilities. Sometimes markets react first and think later.

Meta's Moment vs. Microsoft's Stumble

Meta's surge highlighted how the market is becoming increasingly selective about AI investments. The company didn't just beat revenue and profit estimates—it convinced investors that its massive AI infrastructure spending is generating real returns. Mark Zuckerberg's team showed tangible progress in monetizing AI across Facebook and Instagram.

Microsoft faced different scrutiny. While the company posted solid results, its crucial Azure cloud business failed to wow investors. In today's market, "solid" isn't enough when you're spending billions on AI. Investors want proof that cloud computing growth can accelerate, not just maintain.

Fed Shakeup Adds Uncertainty

President Trump's Friday announcement that he'll nominate Kevin Warsh to replace Jerome Powell as Fed Chair added another layer of complexity. Warsh, who served as a Fed governor from 2006-2011, is viewed as more hawkish than other candidates.

Gold and silver prices tanked on Friday as investors interpreted the pick as potentially less accommodative for monetary policy. If Warsh takes a tougher stance on inflation or proves more reluctant to cut rates, it could pressure high-growth stocks that benefited from easy money policies.

The timing matters too. With Powell's term ending in May, markets will spend the next few months gaming out policy changes under new leadership.

Beyond the Headlines

While tech dominated headlines, other sectors told their own stories. Starbucks fell over 6% despite promising results that showed CEO Brian Niccol's turnaround gaining traction. Sometimes good news isn't enough if expectations run too high.

GE Vernova and Corning bucked the trend, jumping 10% and 11% respectively. Both companies benefited from the AI infrastructure boom in different ways—Corning through its $6 billion fiber optic deal with Meta, and GE Vernova through power generation demand.

The January Barometer suggests a strong start to the year often predicts positive annual performance. But with Fed leadership changing and AI investments under the microscope, 2026 may test that historical pattern.