Wall Street drops as semiconductor selloff deepens on AI spending fears
A broad selloff in semiconductor stocks dragged all three major US indexes lower for the week as investors grew wary of an impending slowdown in artificial intelligence spending.
All three major US equity indexes closed lower on Friday, posting weekly losses as a sharp selloff in semiconductor shares spread across the broader market. The S&P 500 fell 1.01% to 7,457.78, while the Nasdaq Composite dropped 1.40% to 25,511.12. The Dow Jones Industrial Average declined 0.75% to finish at 52,158.96.
The Philadelphia SE Semiconductor Index recorded its steepest weekly decline in over a year, bringing its July losses to nearly 18%. The drop reflects growing caution among investors who have begun positioning for a slowdown in what has been a nearly trillion-dollar artificial intelligence spending boom. Active managers are already scaling back their exposure to the sector.
"It's like the market has chip fatigue," said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. "Chip stocks are down three of the last four weeks, and it's the same worries, the same concerns; those stocks got way ahead of themselves, and now they're coming back to Earth." Despite the recent pullback, the semiconductor index remains up roughly 65% year-to-date, dwarfing the S&P 500's 9% gain over the same period.
The market pressure contrasts with an otherwise robust outlook for corporate profits. Analysts now expect aggregate year-on-year earnings growth of 26.0% for the S&P 500, a significant jump from the 19.2% forecast as of April 1, according to LSEG. "It's early in earnings season, but we're off to a tremendous start," Detrick added. "Over the next several weeks, we're going to get a lot more sectors and industries reporting. But so far, the banks have really started us off on the right foot."
Individual names saw sharp moves following their latest updates. Netflix tumbled after issuing a weaker-than-expected earnings forecast that raised questions about the sustainability of its content growth momentum. Uber Technologies dropped on news that it would acquire German food delivery company Delivery Hero in a deal valued at nearly $15 billion. Intuitive Surgical shares slid after the medical device maker left its da Vinci procedure growth forecast unchanged and warned that insurance-plan changes are delaying patient care.
Outside of technology, energy stocks were the brightest spot in the S&P 500, climbing higher as crude prices spiked on escalating hostilities in the Iran war. Economic data presented a mixed picture of the underlying economy. Consumer sentiment reached a five-month high in July, but single-family housing starts and building permits declined. Industrial output edged up by a meager 0.1%.
