Global stock markets, particularly the technology and semiconductor sectors, experienced a downturn driven by fears that artificial intelligence (AI) related stocks are overvalued. The Nasdaq Composite fell 1.47%, the S&P 500 declined 0.51%, and the Dow Jones Industrial Average was down 0.20%. These drops were largely attributed to a broad sell-off in chip stocks, as investors questioned whether the rapid AI-driven rally was sustainable and if aggressive spending on AI infrastructure could be justified. The PHLX Semiconductor Index, comprising 30 major U.S.-listed chip stocks, plunged significantly, with one source reporting a 5% drop and another a 4.3% decline.
Despite Taiwan Semiconductor Manufacturing Co. (TSMC), a key industry player, reporting its fifth consecutive quarter of record earnings and beating market expectations due to high demand for AI chips, investor sentiment shifted towards profit-taking. TSMC's stock in Taiwan initially rose but its U.S.-listed shares fell 3%, and its full stock price in Taiwan later dropped 7.29%. The company also increased its full-year capital expenditure forecast from $52 billion-$56 billion to $60 billion-$64 billion, which, rather than reassuring investors, fueled concerns about excessive spending and the industry's investment cycle. Analysts like Fabien Yip from IG International noted that "Capex guidance comes into focus again as investors get increasingly sceptical on whether growth can be achieved sustainably."
Numerous chip companies saw steep declines. Micron Technology fell 5.65% (or 6.3% by another account), SanDisk plummeted 12.63% (or 12.8%), Western Digital sank 9.15% (or 10.8%), Seagate Technology dropped 10.00%, and Marvell Technology was down 8.71%. Major chipmakers like Intel (-5.84%) and AMD (-5.33%) also weakened. Nvidia, the leading AI chip maker and the largest company on Wall Street by value, fell 2.40% (or 2.5%), exerting significant downward pressure on indices. Even Alphabet, Google's parent, lost 4.4%. The sell-off extended to Asian markets, with South Korea’s Kospi index falling more than 6% due to steep drops in SK Hynix and Samsung, and SK Hynix American depositary receipts (ADR) listed on the Nasdaq plunging 13.69%.
Paul Nolte, chief market strategist at Murphy & Sylvest, highlighted the disproportionate influence of semiconductors, noting their weight in the S&P 500 has surged from around 8% three to four years ago to over 20%. Andrew Jackson, strategist at Ortus Advisors, suggested the sell-off reflected an "unwinding of crowded AI momentum trades rather than a deterioration in the sector’s long-term fundamentals." This comes as 87% of the 40 S&P 500 corporations that released results beat market expectations, indicating the chip sector's struggles were a specific concern rather than a broader earnings issue. Concerns over AI valuation fears and whether demand for computer memory and processors can be sustained if AI doesn't yield promised profits and productivity continue to drive investor caution.
