The sell-off in chipmaker stocks accelerated on Friday, pushing the group that has led this year’s stock rally into a bear market amid concerns that spending money on artificial intelligence is becoming harder to justify.
This week’s decline in the semiconductor sector is shaping up to be the worst since the April 2025 tariff collapse, with the index plunging 20% from its all-time high. A rally by Chinese AI startup Moonshot further dampened enthusiasm for the sector, which has also been hit by a rotation out of high-value technology stocks in favor of economic-sensitive stocks. He Nasdaq 100 lost 1.2%.
Shares of semiconductor companies had recently closed their best quarter ever, prolonging an extraordinary boom fueled by insatiable demand for AI. However, the sector has faced turbulence due to the worry over increased competition, potential overcapacity and whether multibillion-dollar investments in AI will pay off.
While earnings and demand trends remain strong, recent profit-taking suggests some investors are wondering how long the current pace of growth can continue, according to David Morrison by Trade Nation.
“The question now is whether this will become another ‘buy the dip’ opportunity, or whether the pace of sales will accelerate as everyone rushes out at the same time,” he added.
The fall in prices spread through global markets, causing a search for safe haven assets. Treasuries rose, while safe-haven currencies such as the Japanese yen and Swiss franc outperformed. Geopolitical tensions also reduced risk appetite, and oil rose about 3% as the United States and Iran intensified their attacks.
According to Blessed Manthey, of Citigroup Inc., sharp stock rotations are necessary for the stock rally to extend beyond the technology sector. He stated that the current market weakness reflects a shift between sectors, rather than a market decline.
“The market has begun to harbor hope for a long-awaited enlargement,” he declared. Manthey to Bloomberg Television. “For that to happen, rotations are needed, and these sometimes tend to occur quite abruptly, and that is precisely what we are seeing now.”
In another sign of rotation, most S&P 500 sectors posted gains on Friday. The equally weighted version of the index, which gives Target Corp. the same weight as Microsoft Corp. remained at historic highs thanks to solid corporate results and signs of economic resilience.
The data showed that the trust US consumer demand increased in early July, reaching its highest level in five months, thanks to lower gasoline prices. Housing construction rebounded in June after the sharp decline in the previous month, driven by the recovery of the apartment construction sector. However, manufacturing production stagnated last month, weighed down by the decline in durable goods.
