A selloff in chipmakers dragged down stock markets amidst growing concerns over whether massive artificial intelligence investments will justify their high valuations, compounded by a resurgence in geopolitical risks. The Nasdaq 100 fell 1.1%, and a gauge of powerhouses like Nvidia Corp. and Broadcom Inc. dropped by 3.5%. This occurred even as Taiwan Semiconductor Manufacturing Co. (TSMC) reported strong earnings and increased its spending plans, which failed to reassure investors.
Analysts noted that the negative response to strong earnings from a chip giant like TSMC is raising concerns within this crucial market leadership group. Traders are questioning whether tech stocks have become too richly valued, especially with the four largest U.S. AI operators, including Meta Platforms Inc. and Alphabet Inc., projected to spend over $725 billion this year alone on AI. The S&P 500, despite most of its shares rising, retreated by 0.2%.
Geopolitical tensions, particularly intensified U.S. strikes against Iran, also contributed to a dampened risk appetite, pushing Brent crude oil near $85 per barrel and deepening inflation worries. This re-ignited expectations of a Federal Reserve rate hike, causing bond yields to rise, with the 10-year Treasury yield advancing three basis points to 4.58%. Economic data showed jobless claims fell last week, and retail sales modestly increased in June, underscoring the resilience of the U.S. economy.
Specific chip stocks saw significant declines: Nvidia fell 2.5%, Micron Technology dropped 6.3%, SanDisk plummeted 12.8%, and Western Digital sank 10.8%. The technology sector was the biggest percentage loser in the S&P 500, with semiconductor stocks alone witnessing a 4.8% drop. Matt Maley of Miller Tabak emphasized that the performance of chip stocks remains the most important issue for the overall stock market, warning that a sustained rebound is needed to avoid real warning flags.
Positive corporate news included UnitedHealth Group Inc. boosting its outlook and Abbott Laboratories raising profit guidance. Merck & Co. secured regulatory approval for a new cholesterol pill, and JB Hunt Transport Services Inc.'s earnings signaled stronger freight rates. Uber Technologies Inc. agreed to acquire Delivery Hero SE for $14.8 billion, and Eli Lilly & Co. moved into psychedelic medicine with a potential $3.8 billion deal for AtaiBeckley Inc.
