The Nasdaq-100 sits 9.4% below its early June peak after semiconductor stocks took another beating on Tuesday. The selling started overnight in Asia, where Samsung and SK Hynix fell hard, then rolled through Europe into U.S. chipmakers. Strong earnings reports have not quieted investors' questions about the return on AI spending.
The Nasdaq-100 has slipped to the edge of correction territory. The index was down 9.4% from its early June peak, according to FactSet data, pressured by semiconductors and by continuing weakness in shares of some megacap tech giants like Microsoft and Alphabet.
Chip stocks have endured large selloffs before, yet as semis have continued to move lower in July, this latest challenge is proving to be even more enduring. The PHLX Semiconductor Index, a popular index of U.S.-traded semiconductor names, entered bear-market territory earlier this month and as of Tuesday was off 24.5% from its late June record high.
Asian memory names set off the latest slide
The latest bout of semiconductor volatility started overnight in Asia, where shares of South Korean memory giants Samsung and SK Hynix fell hard, leading to another round of trading halts. Fears about Chinese competition were at least partly to blame.
Then the selling followed through to Europe and the U.S. Intel closed nearly 6% lower and AMD lost 8%. Memory names fell further still, with Micron and Seagate losing more than 8%, Western Digital sinking nearly 7% and Sandisk shedding 14%.
Earnings have not answered the AI return question
When the semis trade started to wobble late last month, many analysts on Wall Street initially hoped the pain would be short-lived. But strong reports from Alphabet and Celestica have failed to quiet investors' concerns about the eventual return on all of this AI-related investment.
According to MarketWatch, 22V Research chief market strategist Dennis DeBusschere wrote: "There are too many questions and not enough answers related to the AI buildout".
During the second quarter, traders piled into leveraged products like ETFs to try and cash in on the rally in semis, and those positions are now being washed out. Whether this is simply a positioning reset, or the start of a bigger pullback, remains to be seen.
Dow rises as the Nasdaq Composite slips
The Nasdaq Composite fell Tuesday, leaving it 8.2% off its record close in early June, according to Dow Jones Market Data. The S&P 500 gained 0.2%, and the Dow Jones Industrial Average rose 1%, leaving it 0.6% from its early July record.
Sources: MarketWatch, CNBC
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