The Nasdaq composite closed down more than 1% Monday, with big technology stocks creating the biggest drag as investors worried about demand for technology supporting artificial intelligence while they waited for results from market heavyweight Nvidia.
The S&P 500 closed slightly lower while the Dow was close to unchanged.
Demand for Nvidia's's pricey AI chips will be in focus when it reports results on Wednesday. Investors have been questioning hefty spending on the technology since low-cost AI models from China's DeepSeek rattled the industry in January.
Adding to uncertainty, a TD Cowen analyst note published late on Friday reported that Microsoft Corp has scrapped leases for sizeable data center capacity in the U.S., suggesting a potential oversupply of AI infrastructure.
Microsoft said its plan to invest over $80 billion in AI and cloud capacity this fiscal year was intact but that it "may strategically pace or adjust" infrastructure in some areas.
"Markets are already jittery and looking for a reason to take profits," said Gene Goldman, chief investment officer at Cetera Investment Management, noting that any question about AI is seen as a reason to take profits since the technology has driven market growth for the last few years.
And, along with worries about tariffs and inflation, investors are getting more anxious about economic growth after last week's batch of weak economic data and a disappointing forecast from Walmart.
"Volatility is being driven by market uncertainty about whether we're facing a growth scare or an inflation scare," said Goldman.
According to preliminary data, the S&P 500 lost 29.18 points, or 0.49%, to end at 5,983.95 points, while the Nasdaq Composite lost 238.49 points, or 1.22%, to 19,285.51. The Dow Jones Industrial Average rose 33.93 points, or 0.08%, to 43,469.97.
The more defensive healthcare index was leading percentage gains throughout the session while technology was the biggest laggard.
"The dominance of the AI tech trade has run its course, not that these companies aren't great stocks. We're headed for a major digestion phase," said Peter Boockvar, CIO at Bleakley Financial Group.
On the data front, the Personal Consumption Expenditure index — the Federal Reserve's preferred inflation gauge — is expected on Friday and could help markets gauge the timing of the central bank's first rate cut this year.
Interest rate futures indicate trader expectations that the Fed will leave borrowing costs unchanged until June, according to CME Group's FedWatch tool.
In individual stocks, Apple gained ground after the iPhone maker unveiled plans to spend $500 billion in U.S. investments in the next four years, including setting up a factory in Texas for AI servers.
Berkshire Hathaway shares and hit record highs in early trading, after Warren Buffett's conglomerate reported a record annual profit.
Nike added advanced after Jefferies raised its rating to "buy" from "hold."