US stock futures edged lower after a sharp reversal in artificial intelligence leadership sentiment, triggered by a 5.5% decline in Nvidia despite stronger-than-expected fourth-quarter results and upbeat forward guidance.

Contracts tied to the Dow Jones Industrial Average, S&P 500, and Nasdaq 100 slipped as investors reassessed the sustainability of record-breaking AI infrastructure spending — a theme that has powered much of the market’s gains over the past year.

Nvidia’s Pullback Raises the Bar for AI Leaders

Nvidia’s earnings beat and robust outlook would typically have fueled another leg higher. Instead, the stock broke a prolonged run of gains, signaling that expectations may have become too elevated.

The reaction reflects mounting skepticism about whether hyperscalers and enterprise clients can maintain current levels of AI-related capital expenditures. With billions already committed to data centers, advanced GPUs, and next-generation networking, markets are increasingly focused on return-on-investment timelines.

Given Nvidia’s heavy weighting in major indices, even modest declines can pressure broader market sentiment, particularly in the Nasdaq, where AI-linked names dominate.

AI’s Dual Narrative: Spending vs. Automation

While Nvidia’s drop underscores concerns about the spending side of the AI equation, another narrative is gaining momentum — AI as a cost-cutting force.

Shares of Block Inc. surged more than 23% after-hours after CEO Jack Dorsey announced the company would cut nearly half its workforce, reducing headcount from 10,000 to about 6,000 employees.

Dorsey said AI tools are fundamentally reshaping how businesses operate and suggested that “the majority of companies will reach the same conclusion” within the next year. Investors interpreted the move as margin-accretive rather than distress-driven, rewarding the stock sharply higher.

Market at an Inflection Point

The diverging reactions illustrate a shift in the AI trade. Markets appear to be transitioning from a “growth at any cost” infrastructure buildout phase toward a profitability and efficiency phase.

If AI spending growth slows but AI-driven automation boosts margins across industries, leadership may rotate within the sector rather than collapse outright. However, high valuations leave little room for disappointment, particularly among mega-cap semiconductor names.

For now, futures weakness suggests investors are recalibrating expectations rather than abandoning the AI theme altogether. The key question is whether upcoming earnings and capital expenditure data confirm durability — or signal a moderation in the cycle.