Updates with preliminary closing prices

By Sinéad Carew and Twesha Dikshit

Feb 12 (Reuters) - Wall Street indexes fell sharply, with the Nasdaq slumping 2%, as investors intensified their selloff of technology shares and fled transport stocks amid worries about artificial intelligence disruption.

After starting the day higher, equity indexes turned negative as investors fled riskier sectors and placed more defensive bets such as utilities .SPLRCU, consumer staples .SPLRCS and real estate .SPLRCR.

At a time when investors have been stressed about the impact AI would have on competition, a less-than-impressive quarterly update from Cisco Systems CSCO.O helped to sour the market on technology stocks broadly. Transportation companies also got caught up in worries about AI disruption.

"The broader narrative within the market is what sectors and industries can increase productivity from AI investments, and on the flip side, what industries are going to be disrupted by AI," said Jack Herr, primary investment analyst at GuideStone Funds.

"We see this as a 'prove it' year for AI. We need to start seeing some return on investments."

According to preliminary data, the S&P 500 .SPX lost 108.85 points, or 1.57%, to end at 6,832.62 points, while the Nasdaq Composite .IXIC lost 469.32 points, or 2.02%, to 22,600.85. The Dow Jones Industrial Average .DJI fell 668.88 points, or 1.33%, to 49,453.61.

INVESTORS AWAIT INFLATION REPORT, PARSE JOBLESS DATA

After Wednesday's stronger-than-expected jobs report fueled worries the Federal Reserve could now be less likely to cut rates, investors braced for the January Consumer Price Index report, due on Friday.

Thursday's data showed the number of Americans filing new applications for unemployment benefits decreased by less than expected last week, likely as disruptions from winter storms lingered.

"We're in that in-between zone between two key economic macro reports," said Marc Dizard, chief investment officer at Huntington Wealth Management. He added the market is also contending with concerns about the impact of AI on companies such as Cisco.

Cisco shares slumped after the networking equipment provider posted quarterly adjusted gross margin below estimates.

The S&P 500 software index .SPLRCIS also fell, after bouncing back from last week's drubbing. Its biggest percentage decliner during the session was AppLovin APP.O, which reported fourth-quarter results. Shares in the marketing platform have come under pressure this year due to intense competition.

The Dow Jones Transport Average .DJT lost ground with CH Robinson ROL.N, Landstar and Expeditors International EXPD.N shares tumbling.

CNBC reported that a new tool from AI company Algorhythm Holdings RIME.O made trucking companies the latest target of investor worries about AI disruption.

"There was weakness in the jobs report on transportation hiring," said Scott Helfstein, head of investment strategy at Global X, referring to Wednesday's jobs report. "Layer that on top of potential disruption from automation as well as risks of weaker demand."

The Philadelphia SE Semiconductor index .SOX fell and megacaps including Apple AAPL.O, Nvidia NVDA.O and Amazon.com AMZN.O were among the biggest drags on the S&P 500.

Earnings season has revived investor worries about ambitious capital spending this year, with Amazon, Google GOOGL.O, Meta META.O and Microsoft MSFT.O collectively expected to spend around $650 billion in the race for AI dominance.

Equinix EQIX.O shares rallied after the largest data-center operator forecast annual revenue above estimates on Wednesday, betting on strong AI-linked demand. Its gain helped boost the S&P 500 real estate index.

Personal-computer makers fell after China's Lenovo warned of shipment pressure due to a memory-chip shortage, weakening shares of HP HPQ.N and Dell Technologies DELL.N.

(Reporting by Sinéad Carew, Twesha Dikshit and Purvi Agarwal in Bengaluru; Editing by Shilpi Majumdar, Pooja Desai, Rod Nickel)

((sinead.carew@thomsonreuters.com))