US markets, particularly the tech-heavy Nasdaq and S&P 500, saw sharp declines on Tuesday, with the Nasdaq Composite falling over 2% and the S&P 500 down 1.3%-1.5%. This selloff was largely driven by a plummet in semiconductor stocks, as investors grew wary of future Federal Reserve interest rate hikes and the sustainability of massive, debt-fueled AI infrastructure spending.
Chipmakers, which have been key beneficiaries of the AI boom, were hit hard. Micron Technology plunged between 9% and 11%, SanDisk dropped 12% to 13%, and Intel fell between 3.8% and 7%. Nvidia, another AI heavyweight, slipped nearly 3%. This downturn followed analyst concerns that current valuations in the AI sector might be too high, especially coupled with the increasing reliance on debt and equity markets to finance ambitious AI projects.
Adding to the market's unease was hawkish commentary from new Fed Chairman Kevin Warsh, suggesting a potential interest rate hike before the end of the year, possibly as early as July. Such a move would increase the cost of capital, potentially hindering the expensive buildout of AI infrastructure. The CBOE Volatility Index, a measure of market fear, climbed to an over one-week high, reflecting the heightened investor anxiety.
The global tech selloff also impacted Asian markets, with South Korea's KOSPI index plunging 10%, triggering a circuit breaker. Major South Korean chipmakers SK Hynix and Samsung Electronics each fell over 12%, dragging down the broader market. Concerns about similar overspending on AI and resultant high valuations were echoed across markets, including a significant drop in SpaceX shares, which have reportedly lost over $600 billion in market value over three sessions amid scrutiny of its bond-funded AI spending.
