US Tech Stocks Slump as AI Spending Fears Offset Chip Sector Gains
Major US indices faced a mixed session on Thursday as the heavy losses in Big Tech megacaps dragged down the Nasdaq and S&P 500. Despite a surge in semiconductor stocks following strong earnings, investor anxiety regarding the long-term sustainability of AI spending and rising inflation dominated the market sentiment.
Big Tech Drags Down Nasdaq and S&P 500
The Nasdaq Composite fell by 120.07 points, or 0.47%, to close at 25,356.57, while the S&P 500 saw a marginal decline of 0.01% to end at 7,357.17 points. The primary culprit was the reversal of early morning gains by technology giants. Apple shares declined following news of price hikes for iPads and MacBooks, a move intended to offset rising memory and storage chip costs. Furthermore, industry leaders including Nvidia, Microsoft, and Alphabet all recorded losses, contributing to the Nasdaq’s trajectory toward its steepest monthly decline since March 2025.
The market is currently grappling with a "who pays the bill" dilemma. While semiconductor companies are seeing massive revenues, there is growing concern about the massive debt-backed spending by hyperscalers required to fuel the AI revolution. As Carol Schleif, CIO at BMO Family Office, noted, one company’s blowout earnings often come at the expense of another’s future margins.
Semiconductor Resilience Amidst AI Optimism
In stark contrast to the broader tech decline, the semiconductor sector showed immense strength. The Philadelphia SE Semiconductor index rose, positioning itself for its strongest quarter on record. Micron Technology saw its shares soar after reporting earnings and forecasts that significantly beat Wall Street estimates. This momentum was shared by other industry players, including Sandisk, Qualcomm, Western Digital, and Seagate Technology, all of which saw their stock prices pop. This surge highlights the robust demand for AI-related hardware, even as investors question the fiscal health of the companies purchasing these components.
Inflation Concerns and the Federal Reserve Factor
The Dow Jones Industrial Average managed to buck the trend, rising 87.33 points (0.17%) to close at 51,936.23, aided by positive economic data. However, the macro backdrop remains challenging. U.S. inflation rose above 4.0% in May for the first time in three years, driven largely by higher energy prices. This "toasty" inflation data has intensified speculation regarding the Federal Reserve's next moves.
According to LSEG data, traders are now pricing in at least a 25-basis-point interest rate hike before the end of the year. While a revised first-quarter GDP reading showed a stronger-than-expected growth of 2.1% (up from a prior 1.6%), and jobless claims fell more than anticipated, the looming threat of a hawkish Fed continues to weigh heavily on market volatility.
Key Takeaways
- Tech Divergence: While semiconductor stocks like Micron and Qualcomm surged on strong AI demand, Big Tech giants like Apple, Microsoft, and Nvidia faced selling pressure.
- Inflationary Pressure: US inflation breaking the 4% mark has increased market expectations for a Federal Reserve interest rate hike of at least 25 basis points.
- AI Sustainability Concerns: Investors are increasingly worried about the massive capital expenditure required by hyperscalers to sustain the AI boom and the potential impact on long-term margins.