Key facts
- The Nasdaq Composite opened lower on Tuesday, down 0.43%.
- The Dow Jones Industrial Average opened higher, up 0.54%, while the S&P 500 fell 0.24%.
- Concerns over hefty corporate spending on AI infrastructure and rising Chinese competition are driving market caution.
- Major chip stocks like Micron, Intel, Applied Materials, TSMC, and SK Hynix saw declines in premarket trading.
- Investors are awaiting earnings reports from tech giants like Alphabet, Tesla, Amazon, Meta, and Apple for insights into AI chip demand.
- The Federal Reserve is expected to announce an interest-rate decision on Wednesday, with traders anticipating a hike.
The Nasdaq Composite opened lower on Tuesday, reflecting a cautious global market sentiment towards AI chip stocks. Investors are concerned about substantial corporate spending on AI infrastructure and increasing competition from China. This sentiment comes ahead of significant earnings reports from major Wall Street companies.
At the opening bell, the Dow Jones Industrial Average was up 282.8 points, or 0.54%, while the S&P 500 had fallen 17.6 points, or 0.24%. The Nasdaq Composite dropped 107.0 points, or 0.43%.
In premarket trading, several chip-related stocks experienced declines. Micron slid 6.4%, Intel shed 4.8%, and Applied Materials lost 4.5%. U.S.-listed shares of Taiwan's TSMC and South Korea's SK Hynix fell over 3% each, and Nvidia dipped 0.4%.
The Roundhill Memory Exchange Traded Fund lost 7.8% and has been trading below its 50-day moving average for two weeks, indicating weak short-term momentum. The Philadelphia SE Semiconductor Index has fallen more than 20% from its all-time high reached in June.
Market nervousness is also fueled by signs that major companies like Alphabet and Tesla may be running out of cash to fund their AI ambitions, while China is introducing cheaper AI models and expanding its semiconductor industry presence. Robert Pavlik, senior portfolio manager at Dakota Wealth, noted that the market is extremely concerned about the level of spending by hyperscalers, deeming the large dollar amounts potentially irresponsible.
Investors will closely watch earnings reports from AI hyperscalers Amazon.com, Meta, Apple, and Microsoft later this week to assess the returns on their investments, which total hundreds of billions of dollars, and to gauge demand for chips and AI infrastructure. Shares of these four U.S. companies were marginally higher on Tuesday.
Other market movements included Coca-Cola gaining 4% after raising its annual revenue and profit forecasts, with Walmart and Procter & Gamble adding about 2% each. Boeing rose 0.6% following positive free cash flow generation. Johnson & Johnson increased by 2% after agreeing to a $5.5 billion settlement for tens of thousands of talc-related lawsuits.
Oil prices declined by 1.8% to a one-week low, supported by a seemingly stable U.S.-Iran ceasefire. President Donald Trump indicated that the U.S. was engaged in 'good talks' with Iran, suggesting a potential deal to end the conflict.
The Federal Reserve is scheduled to announce its interest-rate decision on Wednesday. Traders currently estimate a 37% probability of a rate hike this week, with expectations of at least a 25 basis point increase by year-end. Higher interest rates could further strain AI companies that increasingly rely on debt financing.