Key facts
- Chip stocks are experiencing their steepest weekly decline in over a year, down 11% on the Philadelphia SE Semiconductor Index.
- The AI trade is showing signs of wobbling, with investors pulling back from AI-exposed stocks.
- Nvidia, Qualcomm, Broadcom, Micron, SanDisk, and SK Hynix shares have all seen significant drops.
- New AI model releases and potential delays in flagship AI models are fueling investor scrutiny.
- Major Asian and European markets have also seen declines in tech and broader indices.
The recent rally driven by artificial intelligence stocks is showing signs of faltering, leading to a significant sell-off in chipmakers and other AI-exposed companies. The Philadelphia SE Semiconductor Index is on pace for its largest weekly decline in over a year, down 11% for the week and nearly 24% from its late June high, potentially confirming a bear market.
Investors are engaging in profit-taking and scrutinizing the sustainability of AI capital expenditures. Valuations in the semiconductor sector had priced in near-perfect demand, making the stocks vulnerable after a rapid rise. Shares of major players like Nvidia, Qualcomm, Broadcom, Micron, SanDisk, and SK Hynix have all fallen.
Several factors are contributing to the sharp reversal. Chinese AI startup Moonshot unveiled Kimi K3, a large open-weight AI system, which has rekindled scrutiny of the returns from hefty AI investments by U.S. tech companies. Additionally, reports suggest Alphabet's Google is behind schedule on releasing its flagship Gemini 3.5 Pro AI model.
This volatility is being felt globally. South Korea's KOSPI index confirmed a bear market, and Japan's Nikkei tumbled into correction territory. Europe's tech sector is also among the week's top losers. The S&P 500 Momentum Index has pulled back 10% in July, underperforming the broader S&P 500. Even strong forecasts from TSMC and ASML did not halt the slide.
Space stocks also experienced a downturn after earlier gains, with SpaceX's Starship flight test abort adding pressure. The focus now shifts to upcoming earnings reports from Alphabet and Tesla next week.