The tech-heavy Nasdaq 100 slid 3.3% on Tuesday, as the broader S&P 500 fell 1.4%, in a selloff driven by jitters over high-flying chip stocks. Micron Technology dropped 13.2% ahead of its earnings report, which Bloomberg described as "one of the most important in months" for the AI sector. The Dow Jones held steady, but the broader market's focus remains on Wednesday's results.
The selloff reflects a "reality-check moment," per Axios, as investors question whether the massive spending on AI compute infrastructure can sustain the triple-digit stock gains seen over the past year. While demand for AI technology continues to grow, the cost to run frontier models from OpenAI and Anthropic remains high, even as some compute rental prices decline.
Despite the pullback, UBS sees further upside for Advanced Micro Devices and ARM Holdings, citing surging CPU orders from hyperscalers building out AI models. Meanwhile, SK Hynix plans to raise $30 billion in a U.S. listing to meet memory chip demand, signaling ongoing industry investment. European equities steadied after the tech rout, according to Bloomberg.
Counterargument: Some analysts argue the selloff is a healthy correction in an overheated sector, not a reversal. Chip stocks had seen triple-digit gains, and the underlying demand for AI infrastructure remains robust, as evidenced by hyperscaler CPU orders and SK Hynix's massive capital raise. The focus on Micron's earnings may present a buying opportunity if results beat expectations.