NEW YORK: The Nasdaq fell more than 1 percent on Tuesday, pressured by a selloff in semiconductor stocks including Nvidia amid mounting doubts about the sustainability of the AI-driven rally, while a report on China’s DeepSeek making an AI chip also soured sentiment.
Nvidia shed 0.7 percent after Reuters reported Chinese startup DeepSeek is developing its own AI chip, a push that could reduce its dependence on Nvidia and Huawei chips.
Chip stocks tumbled across the world despite memory chip giant Samsung Electronics reporting a 19-fold jump in second-quarter operating profit and surpassing its combined earnings over the past three years.
On Wall Street, the Philadelphia SE Semiconductor index tumbled 5.7 percent to hit a four-week low. The index is on track to shed around USD800 billion in market value if the losses hold.
“The memory component when it comes to AI is where a great deal of spending is going and it is (the) most expensive participant in the makeup of artificial intelligence,” said Todd Schoenberger, chief investment officer at CrossCheck Management.
Shares of chip companies have been some of the biggest winners of the AI trade so far this year amid hopes of insatiable demand, though concerns of the sector being overbought as well as profit-taking by investors have led to some volatility.
Hyperscalers are expected to shell out billions in building out AI infrastructure, yet analysts have warned that investors are yet to see clear evidence of the heavy spending paying off.
Another test of the appetite for chip stocks looms later this week, when South Korean giant SK Hynix’s US listing starts trading on the Nasdaq.
Elon Musk’s SpaceX began trading as part of the Nasdaq-100 index and a wave of brokerages initiated coverage on the stock as an industry-mandated quiet period ended. Its shares declined 5.3 percent.
Seven of the 11 S&P 500 sectors were trading higher as chip weakness overshadowed advances elsewhere. Energy and healthcare were the top gainers.
At 11:51 a.m. ET, the Dow Jones Industrial Average fell 187.28 points, or 0.35 percent, to 52,868.32, the S&P 500 shed 41.18 points, or 0.54 percent, to 7,496.57, and the Nasdaq Composite lost 320.48 points, or 1.23 percent, to 25,800.68.
The Dow hit an all-time high earlier in the session but declines in heavyweights Caterpillar and Goldman Sachs weighed.
Wall Street’s main indexes have rebounded off their lows and the Dow has reclaimed its record highs as receding oil prices on the back of easing Middle East tensions offered some support.
Oil prices, however, rose on Tuesday following reports of attacks on vessels near the Strait of Hormuz.
Fiserv climbed 3.4 percent after media reports that the firm had held discussions with US banks including JPMorgan and Bank of America to sell its payments infrastructure business handling debit card transactions.