US stocks experienced a sharp decline on Tuesday, continuing a global tech selloff. The Morningstar US Market Index fell 1.4%, with the tech-heavy Nasdaq dropping 2.6% and the S&P 500 down 1.6%. This downturn was fueled by investor unease over soaring AI valuations, debt-based capital raising by major tech firms, and hawkish comments from the new Federal Reserve Chair, Kevin Warsh, suggesting potential interest rate hikes as early as July.
Chipmakers were particularly hard hit. Micron and Intel plunged 11.7% and 6.5% respectively, despite being among the few tech stocks to see gains on Monday. South Korean chipmakers SK Hynix and Samsung both fell 13%, causing the KOSPI benchmark to drop 10%. In Europe, ASML and STMicroelectronics each declined over 6%. These declines occurred as investors questioned the sustainability of the sector's future returns given current high spending on AI infrastructure.
Major tech companies also saw substantial losses. Alphabet slipped 1.7%, adding to an earlier 5% drop, and other "Magnificent Seven" stocks like Microsoft, Nvidia, Amazon.com, and Tesla were under pressure. SpaceX, having lost over $600 billion in market value in three sessions, fell below a $2 trillion valuation for the first time since its IPO. The Nasdaq 100 was on track to shed over $1 trillion in market value, with chipmakers and AI-linked megacaps extending their losses.
Investor sentiment was further impacted by rising expectations for Federal Reserve rate hikes. Traders are now pricing in 50 basis points of rate increases by December, double the expectations from two weeks prior, following Warsh's more hawkish stance. This prospect of higher borrowing costs makes debt-funded AI infrastructure spending, which has bolstered the tech rally, harder to justify at current valuations. The selloff is seen by some analysts as a "reset against a higher rate outlook" rather than a sign of a broader economic catastrophe.
