US tech stocks sink 5.8% as AI chip selloff deepens on spending doubts

The S&P 500 information technology index tumbled 5.79% to 413.81 on Thursday, its biggest single-day drop this year, as a rout in AI chipmakers intensified on concerns that hyperscale spending may slow.

"The market is repricing the AI trade after months of relentless optimism," said Michael Wilson, chief equity strategist at Morgan Stanley. "When the leading edge of the rally starts to crack, the rotation can happen fast."

The VanEck Semiconductor ETF slid more than 5%, a day after ending its strongest quarter on record with a 71% surge between April and June. Micron Technology and SanDisk each fell more than 10%, while the broader Philadelphia Semiconductor Index pulled back sharply. The selloff erased gains from what had been a blistering first half for chip stocks, with the information technology index now down 4.92% for the week.

The decline raises questions about whether the AI-driven rally that powered the Nasdaq to repeated records has peaked, with investors now scrutinizing whether the hundreds of billions in capital expenditure by tech giants will translate into proportional returns. The next test comes with Big Tech earnings later this month.

The catalyst for Thursday's selloff was twofold. Reports that Meta Platforms is exploring a cloud infrastructure business to sell excess AI computing capacity fueled concerns that hyperscale companies may become more disciplined with their spending. Separately, news that Apple is evaluating memory chips from Chinese suppliers added pressure on South Korea's dominant memory makers, with Samsung Electronics falling 7.5% and SK Hynix dropping 9.2% in Seoul trading.

The weakness cascaded across Asia's semiconductor supply chain. Japan's Nikkei 225 fell 1.6%, with Kioxia Holdings plunging more than 13% and Ibiden losing 7.9%. Taiwan Semiconductor Manufacturing Co. extended its recent decline as investors reassessed valuations after this year's powerful rally.

Sector Rotation Accelerates

The technology rout stood in stark contrast to the broader market. The Dow Jones Industrial Average rose for a fourth straight week, supported by gains in defensive and value-oriented sectors. The divergence signals a rotation out of growth and into cyclicals, a pattern that typically emerges when investors question the sustainability of a leadership group.

All 11 GICS sectors were split, with technology and communication services the worst performers while utilities, consumer staples and health care posted gains. The Cboe Volatility Index jumped, reflecting increased demand for downside protection.

Jobs Data Offers a Counter-Narrative

A softer-than-expected June jobs report provided a partial offset. The US economy added 57,000 jobs, well below the 110,000 consensus estimate, while the unemployment rate held at 4.2%. The data tempered expectations for Federal Reserve rate hikes, pushing the 10-year Treasury yield down 1.8 basis points to 4.457% and sending the dollar lower.

Gold surged on the weaker dollar and lower yields, while oil fell to a four-month low as progress in US-Iran talks eased supply concerns, with Brent crude sliding to around $70.66 a barrel.

The mixed signals — cooling labor data alongside a tech-led equity selloff — leave investors navigating a market where the macro backdrop is improving but valuations in the most crowded trades are under pressure. With second-quarter earnings season approaching, the next catalyst for direction may come from corporate results themselves.

This article is for informational purposes only and does not constitute investment advice.