Chip Rout Drags Down the Nasdaq as Investors Question the AI Boom
A slide in semiconductor stocks — triggered by Samsung's earnings and reports that China's DeepSeek is building its own AI chip — knocked the Nasdaq down more than 1% as oil prices jumped.
Wall Street stumbled on Tuesday as a sharp selloff in chipmakers rattled the market, reviving investor anxiety over whether the enormous sums being poured into artificial intelligence can be justified at today's lofty valuations.
The Nasdaq Composite fell 1.16% to close at 25,818.69, its weakest session in weeks. The broad S&P 500 slid 0.45% to end at 7,503.85, while the Dow Jones Industrial Average lost 130.76 points, or 0.25%. The damage was concentrated in technology, where a gauge of semiconductor firms sank more than 4.5% in a single day.
The trigger was a one-two punch aimed at the heart of the AI trade. Samsung's latest quarterly results failed to meet some analysts' elevated expectations, undercutting confidence in the memory-chip market. At the same time, reports surfaced that China's DeepSeek — the startup that jolted the industry last year — is now developing its own AI chip, a move that threatens to erode the dominance of established American suppliers.
The pain spread across the sector. Micron closed down 4.7%, with KLA, Marvell Technology, Broadcom and AMD all posting declines. SpaceX, which formally joined the Nasdaq-100 after a weeks-long controversy over its inclusion, dropped 6.83% on its debut in the index. The breadth of the selling suggested that investors were not reacting to a single company's stumble but reassessing the entire premium built into AI-linked names.
The reversal was all the more jarring because it came just a day after a record high. On Monday, July 6, the Dow had surged past 53,000 to a new closing record following the long holiday weekend, powered by renewed optimism about artificial intelligence. Barely 24 hours later, that same enthusiasm curdled into doubt, a whipsaw that captured how tightly the market's fortunes are now bound to a single, crowded theme.
Compounding the pressure, oil prices jumped, pushing bond yields higher and making richly valued growth stocks look even more expensive by comparison. Rising yields tend to weigh most heavily on the technology shares that have led the market's advance, because their lofty prices depend on the promise of profits far in the future.
The session crystallized a debate that has simmered for months on Wall Street: whether the trillions in projected AI spending will translate into the returns that current stock prices assume. For much of the past two years, semiconductor stocks powered the market to record after record. Tuesday's rout was a reminder that the same concentration can cut both ways — and that a single day of doubt about AI can erase weeks of gains across the market's most crowded trade.
Originally reported by CNBC.