US chip stocks head for worst week in more than a year

Chip stocks, including industry leaders like Nvidia and Broadcom, plunged on Friday, leading to the Nasdaq's worst week in over a year and breaking the S&P 500's nine-week winning streak. The PHLX Semiconductor Index (SOX) plummeted 10%, wiping out significant gains since March. This downturn was triggered by disappointing guidance from Broadcom, which did not raise its full-year AI chip target, and a surge in Treasury yields fueled by a strong May jobs report, raising fears of Federal Reserve rate hikes. Higher borrowing costs are a concern for companies heavily investing in AI infrastructure.

The selloff was widespread across the tech sector, with the Nasdaq Composite falling 4.18% to 25,709.43, the S&P 500 dropping 2.64% to 7,383.74, and the Dow Jones Industrial Average decreasing 1.35% to 50,866.78. Memory chip makers were particularly hard hit, with Micron falling over 13% and Marvell Technology sliding more than 16%. Nvidia plunged 6% and Broadcom fell almost 8%, adding to prior losses. The Cboe Volatility Index (VIX) surged 28%, indicating increased market unease.

Analyst Cooper Howard of the Schwab Center for Financial Research noted that the strong jobs report, with 172,000 new nonfarm payrolls and upward revisions for prior months, significantly reduced the probability of near-term Fed rate cuts. Instead, odds of at least one rate hike this year rose from 50% on Thursday to over 70%, with decent odds of two more hikes in 2026. This potential for higher rates challenges the lofty earnings growth estimates for the information technology sector, which FactSet projected at 44.1% for the year, baking in significant AI-driven growth for chip stocks.