US Indexes Mixed as Chipmakers Retreat Amid AI Concerns

U.S. stock indexes closed mixed as sharp declines in artificial intelligence (AI)-focused chipmakers and concerns over Meta's AI cloud services plan weighed on the market. While the Dow Jones Industrial Average reached a record high, the technology-heavy Nasdaq Composite Index suffered significant losses, and the S&P 500 Index finished flat. This situation intensified concerns about the sustainability of the AI rally, leading investors to engage in profit-taking from high-valuation technology stocks.

The decline in chipmaker stocks was largely driven by profit-taking after a massive AI-driven rally in the semiconductor sector. Over the first half of the year, AI-driven demand pushed semiconductor stocks to record highs, with some semiconductor ETFs gaining between 70% and 100%. Following this rapid ascent, major chipmakers like Micron Technology (MU), AMD (AMD), and Intel (INTC) experienced declines of over 5%, while the VanEck Semiconductor ETF (SMH) and iShares Semiconductor ETF (SOXX) also dropped more than 5%. Micron shares, in particular, fell by 5.49% due to concerns over pricing sustainability in DRAM and NAND markets, as well as allegations from a class-action lawsuit.

Another significant factor negatively impacting market sentiment was Meta's (META) plan to enter the AI cloud infrastructure business. Meta's intention to sell idle computing resources to external customers triggered concerns about potential overcapacity in the industry. The premise supporting the AI supercycle, that "exploding AI demand outpaces supply," began to be questioned as a major player like Meta planned to resell surplus resources. This development fueled worries that future chip demand might decrease, putting pressure on semiconductor stocks.

On U.S. exchanges, the Dow Jones Industrial Average (DJI) rose 1.1% to close at a new record of 52,900.07 points. However, the S&P 500 Index (SPX) saw a minimal gain of 0.01%, finishing almost flat at 7,483.24 points. The technology-heavy Nasdaq Composite Index (IXIC), conversely, dropped 0.8% to 25,832.67 points, ending the day with losses. The semiconductor sector was hit hard, with the Philadelphia Semiconductor Index (SOX) declining 5.44% to 12,626.22 points, bringing its two-day loss to over 11%. European and Asian markets were also affected; South Korea's KOSPI index sank 7.9%, Tokyo's index fell 2.5%, and Shanghai's index dropped 2%.

On the economic front, weaker-than-expected June non-farm payrolls data eased bets on potential Federal Reserve (Fed) rate hikes, providing some relief to markets. However, this positive development was overshadowed by the decline in technology stocks and concerns about overvaluation in the AI sector. Analysts noted that indicators suggesting the labor market is not overheating, under the new Fed Chair Kevin Warsh, have reduced expectations for rate increases.

Market analysts suggest that this correction in AI-focused stocks is a natural period of profit-taking after the significant rally in the first half of the year. Some experts believe that despite Meta's cloud move creating short-term overcapacity concerns, long-term AI spending will remain robust. However, investors are becoming more selective, focusing on return on investment and potential overcapacity risks. In the upcoming period, the earnings reports of technology companies and tangible returns from AI investments will play a critical role in determining market direction.