Chip Stocks Extend Selloff as Doubts Grow Over AI Spending

Semiconductor shares fell sharply on Thursday, extending a selloff that Bloomberg attributed to investor skepticism about the artificial-intelligence trade. The chip sector is now far below its high, and the broader tech complex is moving with it.

Bloomberg's live coverage reported that a gauge of chip giants had extended its decline from a June record to 34%, and that the Nasdaq 100 had lost 3% in the same session (Bloomberg). A 34% drawdown, meaning the fall from a peak, puts a basket that started at 100 near 66. The Nasdaq 100 is weighted toward the largest non-financial companies listed on the Nasdaq exchange, so a 3% move there lands heavily on technology names.

The decline has built over several weeks. On Oct. 22, Reuters reported the Dow rose 0.02% while the S&P 500 fell 1.21% and the Nasdaq slid 2.60%, in a selloff driven by renewed AI doubts. MarketWatch put the Nasdaq Composite at 26,008.86 after a 694-point drop. A week later, Reuters reported the Dow down 1.09%, the S&P 500 down 1.82%, and the Nasdaq down 2.86%, with the selloff tied to fears over AI cash burn. Reuters later reported the Nasdaq had fallen more than 5% for the month as investors worried about heavy AI spending (Reuters).

The spending question matters most here. Capital expenditure on data centers and chips is a cost today, and its payoff is an earnings forecast. When investors start asking whether that payoff will arrive, multiples (the price investors pay per dollar of a company's annual earnings) compress before any reported profit falls. That is why semiconductor indexes can drop sharply while the broader economy looks unchanged.

Individual sessions in the chip group have been sharper still. MarketWatch said the PHLX Semiconductor Index slid 5.3% on Wednesday in its worst session. Earlier, MarketWatch reported that the Nasdaq Composite had plunged 2.1% on a Friday in mid-October, with the Information Technology sector down 6.4% over that week (MarketWatch).

Earlier in the year offers a sense of scale. In June, MarketWatch reported the Dow plunged 950 points to close below the 50,000 mark, a decline of roughly 2% at that level. The index-level moves in October were smaller in percentage terms. The Dow was roughly flat on Oct. 22 while the Nasdaq fell more than 2.5%.

In my view, that divergence is the signal worth tracking. Losses confined to one sector are a different problem from losses that spread into the industrial and financial names that anchor the broad market.

For savers, the exposure is less direct than it looks. A cap-weighted index fund, which weights each company by its market value, holds more of each company the larger that company is. A drawdown in the largest technology names therefore reaches a retirement account through the index, even when the holder owns nothing labeled as a chip stock. For borrowers and bond investors, the question is whether a sustained tech repricing feeds into corporate credit spreads, the extra yield over safe government bonds that companies must pay to borrow. That channel tends to move more slowly than equity prices.

Two things will determine whether this stays a sector correction. The first is whether companies trim their AI capital plans or only face questions about them, since a cut in spending hits suppliers' revenue directly. The second is whether reported earnings from chip makers and their customers justify the multiples those stocks carried into the selloff.

Neither is settled by a single session. So far, the price moves reflect a reassessment of expectations, not a reported change in demand.