World stocks hit a one-month low on Tuesday, July 28, as investors sold off chipmakers globally. This rout was driven by concerns over increased Chinese competition and skepticism about the funding and sustainability of the artificial intelligence (AI) boom. Adding to the negative sentiment was the possibility of a US interest rate hike as early as this week.
The tech-heavy Nasdaq Composite fell 1.37%, with major chip companies experiencing significant declines. Micron Technology (MU.O) slid 11.7%, Nvidia (NVDA.O) dropped 1.7%, and Intel (INTC.O) shed 8.5%. Asian chipmakers were also strongly affected, with South Korea's KOSPI diving more than 10% to a three-month low, triggering a circuit breaker. Memory chipmakers SK Hynix and Samsung Electronics both saw their shares shed more than 12%. This widespread selloff in semiconductors contributed to the Nasdaq 100 being on the brink of a technical correction, despite the S&P 500 and Dow Jones Industrial Average posting gains.
On the other hand, oil prices saw a significant drop. Brent crude futures fell around 11% to approximately $87.60 per barrel, and US benchmark West Texas Intermediate settled 9.8% lower at $81.65 per barrel. This decline was attributed to eased tensions in the Middle East, specifically after the US and Iran paused attacks, which raised expectations for a diplomatic resolution and reduced concerns about energy supply disruptions. The fall in oil prices helped to support consumer staples and other sectors sensitive to energy costs.
Despite the chip selloff, the Dow Jones Industrial Average rose 0.51% (262.83 points) to close at 52,210.08, and the S&P 500 edged up 0.016% (1.20 points) to 7,413.18. This resilience in broader markets, particularly the Dow, was partly due to strong earnings reports from companies like Sherwin-Williams and Coca-Cola, and a rotation out of high-profile chipmakers into more economically sensitive industries. Investor sentiment is also awaiting the US Federal Reserve's interest rate decision, with markets pricing in about a 32% chance of a rate hike of 25 basis points on Wednesday.
Concerns about AI spending intensified after Alphabet's latest earnings raised questions about the scale and profitability of AI infrastructure investments. Furthermore, the launch of Chinese memory-chip producer CXMT's initial public offering on the Shanghai Stock Exchange and reports of China developing deep ultraviolet lithography machines added to competitive pressures on semiconductor companies, with US-listed shares of Dutch chip-equipment manufacturer ASML plunging 5.8%.
