Updates with market close

By Noel Randewich and Johann M Cherian

Feb 26 (Reuters) - The S&P 500 and Nasdaq ended sharply lower on Thursday, weighed down by a slump in chipmaker Nvidia after its quarterly report failed to rekindle Wall Street's AI rally, while investors focused on data pointing to a cooling U.S. economy.

Nvidia NVDA.O dropped after the Silicon Valley company gave a weaker-than-expected quarterly forecast for gross margin that overshadowed an upbeat revenue outlook.

Chipmakers Broadcom AVGO.O and Advanced Micro Devices AMD.O also fell, pulling the Philadelphia chip index .SOX down sharply.

The launch of low-cost artificial intelligence models from China's DeepSeek in January has cooled Wall Street's AI rally, while an analyst report this week suggesting Microsoft was scrapping some data center leases also raised concerns of AI overcapacity.

"Nvidia's earnings were good, but not like the blockbuster earnings that they've been delivering for a while," said Scott Welch, chief investment officer at Certuity.

According to preliminary data, the S&P 500 .SPX lost 93.76 points, or 1.57%, to end at 5,862.79 points, while the Nasdaq Composite .IXIC lost 531.00 points, or 2.78%, to 18,544.26. The Dow Jones Industrial Average .DJI fell 192.98 points, or 0.44%, to 43,240.14.

While tech stocks dipped, other parts of the market saw gains. The S&P energy index .SPNY rose, tracking a jump in crude prices after U.S. President Donald Trump canceled oil major Chevron's license to operate in Venezuela.

Also weighing on investor sentiment, data showed jobless claims jumped more than expected in the previous week, while another report reiterated that economic growth slowed in the fourth quarter.

Thursday's data follows reports over the past week that suggested the economy was stalling, fears of which have also put all three major U.S. indexes on track for monthly declines.

"We're now seeing inflation fears give way to growth fears, and that, in turn, is causing stocks to go, at best, sideways, and potentially even down," said Michael Green, chief strategist at Simplify Asset Management in Philadelphia.

On the trade front, Trump floated a 25% reciprocal tariff on European cars and other goods. He also said tariffs on Mexico and Canada will go into effect on Tuesday.

Investors are focused on monthly Personal Consumption Expenditure data, which is the Federal Reserve's preferred inflation gauge, due on Friday.

Traders expect the Fed to lower borrowing costs by at least 50 basis points by December, according to data compiled by LSEG.

Shares of Salesforce CRM.N dropped after the business software seller forecast fiscal 2026 revenue below expectations.

Snowflake SNOW.N surged after the data analytics provider forecast fiscal 2026 product revenue above estimates.

Viatris VTRS.O plummeted after the drugmaker forecast downbeat annual results.

Warner Bros Discovery WBD.O jumped after saying it expects streaming profits to double this year.

(Reporting by Sukriti Gupta, Medha Singh and Johann M Cherian in Bengaluru, and by Noel Randewich in San Francisco; Editing by Devika Syamnath and Rod Nickel)

((noel.randewich@tr.com))