Tech Rout Deepens as Chip Stocks Tumble, Nasdaq-100 Enters Correction

A widespread selloff in semiconductor and memory stocks pushed the Nasdaq-100 index into correction territory on Tuesday, as investor anxiety over artificial intelligence spending and rising competition from Chinese chipmakers intensified. 

The index, which comprises the 100 largest non-financial companies on the Nasdaq exchange, fell 1% on the day, bringing its decline from the recent record high to more than 10%. Meanwhile, the Philadelphia Semiconductor Index dropped into bear market territory, now sitting 20% below its peak.

The selling pressure was felt across the globe, starting in Asian markets before spreading to Wall Street. In South Korea, the Kospi index extended its losses to more than 30% from its high, having fallen sharply over just 25 trading sessions — a dramatic reversal following a spectacular 300% rally that began in April 2025. 

Among the hardest hit were memory chip manufacturers. Sandisk plunged 14%, while Micron and Seagate each fell more than 8%. Advanced Micro Devices and ARM Holdings also suffered steep declines of over 8%. Dell Technologies, which relies heavily on chips for its data centre servers, dropped 8.1%, and Intel slid 5.8%.

The selloff in Asia was even more severe. Samsung Electronics and SK Hynix, both major suppliers of memory for AI data centres, each lost more than 15% of their value. Kioxia, another storage specialist, tumbled 18%.

Analysts at Bespoke Investment Group described the Kospi's decline as "one of its fastest-ever bear-market drops" following a historic rally.

The latest wave of selling was triggered by a report that a Chinese state-backed company had begun mass producing domestic chipmaking equipment. Although the report did not name the firm and could not be independently verified, it rattled investors who fear that established equipment suppliers such as ASML, Canon and Nikon could face increased competition. 

Investors are also bracing for earnings reports later this week from Meta, Amazon and Microsoft. These technology giants are collectively spending hundreds of billions of dollars on AI data centres, and any sign of a pullback could exacerbate the current sell-off. Last week, Alphabet's shares tumbled 7% after it raised its capital expenditure forecast to as much as $205 billion, prompting Evercore analyst Mark Mahaney to warn that Amazon and Microsoft may follow suit.

Despite the unease, JPMorgan expects AI-related spending to reach roughly $870 billion by the end of 2026, a 77% increase from the previous year. Hyperscalers such as Amazon, Meta, Microsoft and Alphabet are projected to account for about $750 billion of that total.

Apple, which is not investing heavily in its own data centres, bucked the trend, rallying about 1% and briefly touching a market capitalisation of $5 trillion – only the second time any company has reached that milestone. Apple overtook Nvidia as the world's most valuable public company, with a valuation of $4.95 trillion compared with Nvidia's $4.77 trillion. 

The broader US market showed resilience, with the S&P 500 and Russell 2000 both edging up 0.2%. The Dow Jones Industrial Average rallied nearly 540 points, supported by gains in IBM, Coca-Cola, Boeing and Salesforce.

HSBC's Max Kettner noted that positive earnings surprises continue to underpin the market, stating that "nothing seems to shake this market." Coca-Cola's strong results, which beat expectations and prompted an upgraded full-year forecast, reinforced the view that consumer spending remains robust.

Market sentiment 

Sentiment is highly bifurcated. Technology investors are clearly rattled, with the Nasdaq-100 correction and the semiconductor bear market signalling a loss of confidence in the AI trade. The unconfirmed China chipmaking report has added fuel to the fire, raising questions about the long-term competitive position of Western and Asian chip equipment makers.

However, the broader market remains buoyant. The S&P 500, Dow and Russell 2000 all advanced, supported by solid earnings and consumer resilience. This suggests that investors are rotating out of overextended tech names into value-oriented and defensive stocks, rather than fleeing equities altogether. 

The upcoming earnings from Meta, Amazon and Microsoft will be pivotal. If they confirm continued aggressive spending on AI infrastructure, it could stabilise chip stocks. If they signal a slowdown, the semiconductor sector could face further headwinds. 

Key takeaway: The divergence between tech and the rest of the market is striking. Investors should watch for any guidance changes from the mega-cap tech companies this week, as that will likely set the tone for the remainder of the earnings season. Apple's milestone highlights that quality and consumer strength remain rewarded, even as the AI trade faces its first major test. 

Disclaimer:
This content has been generated using AI technology and is intended for informational purposes only. While efforts have been made to ensure accuracy and relevance, this text should not be considered professional advice or an official statement. Always verify information from authoritative sources before making any decisions. This is not financial advice.