A selloff in chipmaking stocks led to a downturn in the broader market, driven by worries that extensive artificial intelligence investments might not deliver lucrative returns proportional to their current high valuations. The Nasdaq 100 experienced a 1% decline, while a composite index of major chip companies like Nvidia Corp. and Broadcom Inc. fell by 3.5%. This occurred despite Taiwan Semiconductor Manufacturing Co. (TSMC) providing a solid outlook and increasing its spending plans, which failed to reassure investors. Matt Maley of Miller Tabak noted that a negative market response to TSMC's strong earnings raises concerns about the crucial leadership role of these chip stocks.
Analysts are questioning the sustainability of the tech stock rally, particularly given the substantial capital expenditure. The four largest US AI operators, including Meta Platforms Inc. and Alphabet Inc., are projected to spend over $725 billion this year alone. Brent crude oil prices hovered near $85, exacerbating inflation fears and increasing the likelihood of a Federal Reserve interest rate hike, which further dampened risk appetite alongside heightened geopolitical tensions, including intensified US strikes against Iran.
Economic data released indicated a mixed picture: jobless claims decreased last week, while retail sales in June saw a modest increase, though gas station receipts declined. Morgan Stanley Wealth Management’s Ellen Zentner commented that this data suggests ongoing resilience in the US economy and is unlikely to sway the Fed's immediate rate decisions. Despite the overall market decline, with the S&P 500 falling 0.2%, Bret Kenwell of eToro emphasized the critical role of consumer spending and noted that June's retail sales, while not robust, were not a red flag, especially with an upward revision to May's figures. The durability of the AI rally and chip sector valuations remain a key focus as earnings season unfolds.
