By Abigail Summerville and Shashwat Chauhan
(Reuters) -All three major stock indexes closed higher on Wednesday, rebounding from declines earlier in the session as investors brushed off disappointing Alphabet (NASDAQ:GOOGL) earnings and weighed the prospect of future interest rate cuts from the U.S. Federal Reserve.
Google-parent Alphabet dropped 7.3% after posting downbeat cloud revenue growth on Tuesday and earmarking a higher-than-expected $75 billion investment for its AI buildout this year.
Some AI-related stocks showed signs of recovery after being rocked last week following the soaring popularity of a low-cost Chinese artificial intelligence model developed by startup DeepSeek. Nvidia (NASDAQ:NVDA), which registered one of the biggest losses, rose 5.4% on Wednesday. Broadcom (NASDAQ:AVGO) also rose 4.3%.
"Ultimately, demand is not going away for AI even with the DeepSeek news. They’re all going to have to spend more money and that’s what the AI story has been. This is a fairly long cycle story," said Rob Haworth, senior investment strategist at U.S. Bank Asset Management.
Advanced Micro Devices (NASDAQ:AMD), meanwhile, fell 6.3% after CEO Lisa Su said the company’s current-quarter data center sales - a proxy for its AI revenue - would drop about 7% from the previous quarter.
On the data front, investors are looking ahead to the January nonfarm payrolls report, expected to be released on Friday.
U.S. services sector activity unexpectedly slowed in January amid cooling demand, helping curb price growth, a report from the Institute for Supply Management showed on Wednesday.
"There are some concerns that the Fed may need to ease faster, that the economy is slowing, but that’s actually positive news for the markets because they’re looking for those Fed rate cuts," Haworth said.
The next Federal Open Markets Committee meeting is in March, and while only 16.5% of traders expect a rate cut then, a majority of traders anticipate a cut in June, according to CME’s FedWatch Tool.
Richmond Fed president Thomas Barkin said the Fed was still leaning towards more rate cuts this year, but flagged uncertainty around the impact of new tariffs, immigration, regulations and other initiatives from U.S. President Donald Trump’s administration.
The Dow Jones Industrial Average rose 317.24 points, or 0.71%, to 44,873.28, the S&P 500 gained 23.60 points, or 0.39%, to 6,061.48 and the Nasdaq Composite gained 38.32 points, or 0.19%, to 19,692.33.
Eight of the S&P 500 sectors traded higher, with real estate leading the gains while communication services fell almost 3%.
Shares of Apple (NASDAQ:AAPL) slipped 0.1% as Bloomberg News reported that China’s antitrust regulator was preparing for a possible investigation of the iPhone maker.
Uber Technologies (NYSE:UBER) dropped 7.6% after the ride-hailing company forecast current-quarter bookings below estimates.
Fiserv (NYSE:FI) advanced 7.1% as the payments firm beat estimates for fourth-quarter profit, helped by strong demand in its banking and payments processing unit.
Markets also await developments on the tariffs front after Trump said on Tuesday he was in no hurry to speak to Chinese President Xi Jinping to try to defuse a new trade war between the countries.
The Cboe Volatility Index, known as Wall Street’s fear gauge, dropped 7.9% on Wednesday to 15.85.
In corporate movers, FMC Corp (NYSE:FMC) plunged 33.5% after the agrichemicals producer forecast first-quarter revenue below estimates.
Johnson Controls (NYSE:JCI) jumped 11.3% as the building solutions company named Joakim Weidemanis as chief executive officer and lifted its 2025 profit forecast.
Advancing issues outnumbered decliners by a 2.74-to-1 ratio on the New York Stock Exchange. There were 169 new highs and 46 new lows on the NYSE.
On the Nasdaq, 2,935 stocks rose and 1,422 fell as advancing issues outnumbered decliners by a 2.06-to-1 ratio.
Volume on U.S. exchanges was 13.85 billion shares, compared with the 15.32 billion average for the full session over the last 20 trading days.