US stocks plunged across the board, with the tech-heavy Nasdaq 100 Index plummeting 2.1% and the S&P 500 Index declining 0.93% by mid-morning in New York. The selloff was primarily triggered by heightened concerns surrounding the unveiling of a new artificial-intelligence model developed by a Chinese startup, which impacted semiconductor names.
Nvidia Corp., a key player in the semiconductor industry and a member of the "Magnificent Seven" cohort, led the overall market lower. The Philadelphia Stock Exchange Semiconductor Index was particularly hard hit, suffering a steep plunge of 3.9%, which officially pushed it into a bear market. This highlights the significant sensitivity of the market to developments in the AI and chip manufacturing sectors.
Adding to the pressure, investors globally offloaded chip stocks, despite some positive individual earnings reports. Thursday's trading saw tech-heavy equity indexes around the world fall. For instance, Taiwan Semiconductor Manufacturing Company (TSMC) reported higher-than-expected 77% earnings growth, yet its shares, and the broader chip sector, still faced selling pressure. According to Joel Leon and Levin Stamm, the market is pricing AI on "perfection" rather than just growth, meaning even strong earnings might not be enough to prevent a sell-off if expectations for flawlessness are not met.
This broad market reaction demonstrates the significant influence that chipmakers and AI-related news now have on global equity markets. The market's deep dive comes after a period of U.S. equity gains based on soft inflation data, marking what analysts like Gene Goldman, chief investment officer at Cetera, described as the market "catching its breath, not changing its mind." Earlier, South Korea's KOSPI index fell over 6% and Japan's Nikkei closed almost 3% lower, reflecting the global nature of the chip stock selloff.
