A selloff in chipmakers, linked to concerns about whether massive artificial intelligence investments will justify high valuations, dragged down stocks. A closely watched gauge of semiconductor firms dropped by 3.5%. This occurred despite a solid outlook from Taiwan Semiconductor Manufacturing Co. (TSMC), the main chipmaker for Nvidia Corp., which raised its spending plans. The Nasdaq 100 experienced a 1.2% decline.
Traders are questioning the rich valuations of tech stocks amidst uncertainty regarding the profitability of trillions of dollars in AI spending. The four largest US AI operators, including Meta Platforms Inc. and Alphabet Inc., are expected to spend over $725 billion this year alone. Analysts like Matt Maley at Miller noted that the negative response to TSMC's strong earnings is raising concerns among investors about this critical leadership group.
Geopolitical risks also impacted market sentiment, with heightened tensions between the US and Iran leading to US strikes near Iran's main export terminal. Brent crude surpassed $85, deepening inflation worries and strengthening expectations for a potential Federal Reserve interest rate hike. West Texas Intermediate (WTI) crude rose 0.6% to $80.09 a barrel, while spot gold fell 1.7% to $3,990.02 an ounce.
Despite these challenges, economic data released showed some resilience. Jobless claims decreased last week, and retail sales modestly increased in June. While gas station receipts declined, masking strong gains in other retail sectors, Morgan Stanley Wealth Management's Ellen Zentner noted that consumers are still spending and the labor market remains strong. The yield on 10-year Treasuries advanced four basis points to 4.58%. The S&P 500 fell 0.4%, and the Dow Jones Industrial Average was little changed.
