By Abigail Summerville and Shashwat Chauhan

(Reuters) – All three major stock indexes closed higher on Wednesday, rebounding from earlier declines as investors disregarded disappointing Alphabet (NASDAQ:GOOGL) earnings and considered potential future interest rate cuts from the U.S. Federal Reserve.

Google-parent Alphabet dropped 7.3% after reporting lackluster cloud revenue growth on Tuesday and announcing a higher-than-expected $75 billion investment for its AI expansion this year.

Some AI-related stocks showed signs of recovery after being impacted last week by the rising popularity of a low-cost Chinese artificial intelligence model developed by startup DeepSeek. Nvidia (NASDAQ:NVDA), which faced one of the largest losses, rose 5.4% on Wednesday. Broadcom (NASDAQ:AVGO) also saw a rise of 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), however, fell 6.3% after CEO Lisa Su indicated that the company’s current-quarter data center sales—an indicator of its AI revenue—would decline about 7% from the previous quarter.

On the data front, investors looked forward to the January nonfarm payrolls report, which is expected to be released on Friday.

U.S. services sector activity unexpectedly slowed in January amid cooling demand, which helped curb price growth, according to a report from the Institute for Supply Management released 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 noted.

The next Federal Open Markets Committee meeting is set for March, and while only 16.5% of traders expect a rate cut at that meeting, a majority expect a cut in June, according to CME’s FedWatch Tool.

Richmond Fed president Thomas Barkin stated the Fed was still leaning towards additional rate cuts this year but also highlighted uncertainty surrounding the effects of new tariffs, immigration, regulations, and other measures from U.S. President Donald Trump’s administration.

The Dow Jones Industrial Average rose 317.24 points, or 0.71%, to 44,873.28, while the S&P 500 gained 23.60 points, or 0.39%, to 6,061.48. The Nasdaq Composite increased by 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 nearly 3%.

Shares of Apple (NASDAQ:AAPL) dipped 0.1% as Bloomberg News reported that China’s antitrust regulator was preparing for a potential investigation of the iPhone manufacturer.

Uber Technologies (NYSE:UBER) fell 7.6% after the ride-hailing company projected current-quarter bookings below estimates.

Fiserv (NYSE:FI) advanced 7.1% as the payments firm exceeded expectations for fourth-quarter profit, aided by robust demand in its banking and payments processing segment.

Markets are also keenly awaiting developments on the tariffs front after Trump indicated on Tuesday that he was not in a hurry to negotiate with Chinese President Xi Jinping to de-escalate the emerging trade tensions between the two countries.

The Cboe Volatility Index, known as Wall Street’s fear gauge, decreased by 7.9% on Wednesday to 15.85.

In corporate movers, FMC Corp (NYSE:FMC) plummeted 33.5% after the agrichemicals producer forecasted first-quarter revenue below estimates.

Johnson Controls (NYSE:JCI) surged 11.3% as the building solutions company appointed Joakim Weidemanis as chief executive officer and raised its 2025 profit forecast.

Advancing issues outnumbered decliners by a 2.74-to-1 ratio on the New York Stock Exchange, with 169 new highs and 46 new lows recorded.

On the Nasdaq, 2,935 stocks advanced while 1,422 declined, resulting in a ratio of 2.06-to-1 for advancing to declining issues.

Volume on U.S. exchanges reached 13.85 billion shares, compared to the 15.32 billion average over the last 20 trading days.