(July 17): US stocks plunged on Friday as the selloff in semiconductor names gathered steam following the reveal of an artificial intelligence (AI) model from a Chinese startup.
The tech-heavy Nasdaq 100 Index plummeted 2.1% at 9.55am in New York, while the S&P 500 Index was down 0.93%. Nvidia Corp led the Magnificent Seven cohort lower. The Philadelphia Stock Exchange Semiconductor Index plunged 3.9%, entering a bear market.
“Markets are heading into the weekend with caution after a volatile week that was defined by softer US inflation, the start of earnings season and renewed weakness across AI-related technology stocks,” said Daniela Hathorn, senior market analyst at Capital.com. “While the cooler-than-expected CPI report initially lifted risk appetite and weighed on the US dollar, optimism faded as investors rotated out of the semiconductor sector despite largely encouraging corporate earnings.”
The selloff in chipmakers was triggered by a surprise breakthrough from Moonshot, which said its Kimi K3 model could rival the strongest offerings from OpenAI and Anthropic PBC. Investors drew parallels with last year’s “DeepSeek moment.”
Andrew Tyler, global head of market intelligence at JPMorgan Chase & Co, noted that the Magnificent Seven has generally benefitted from the pullback in semiconductor stocks. However, the group has started to underperform as the narrative shifts to AI capital expenditures from momentum reversal and crowded positioning in semiconductors and memory.
See also: US corporate insiders selling stocks at near record pace
“The overnight headline on Moonshot’s Kimi K3 certainly does not help,” Tyler wrote in a note to clients on Friday morning. “Concerns over a possible ‘DeepSeek 2.0’ moment weighed on both Asia and US tech overnight.”
Concerns around AI — and the capital spending around it — resurfaced on Thursday after Taiwan Semiconductor Manufacturing Co reported results. Traders have become more critical over AI this year, rotating out of stocks linked to the technology on the basis that the spending has failed to produce meaningful returns.
Even as chip stocks dragged the S&P 500 lower on Thursday, a majority of stocks in the benchmark rose, signalling healthy market breadth. The S&P 500 Equal Weighted Index finished at an all-time high on Thursday.
See also: Chip stocks get hit as AI spending anxiety builds
The yearslong global AI rally has again seen investor worry rise over stretched valuations and the sustainability of capital expenditures. That’s being exacerbated by a leverage-fuelled boom driving record volatility in South Korea and concerns over a potential flood of new memory-chip capacity in China that could weigh on prices.
The chipmaker rout is more like a “crowded trader coming unstuck” than a “sudden collapse” in the investment story around AI, according to Matt Britzman, senior equity analyst at Hargreaves Lansdown. While Britzman does not dismiss the risks, he does not see a material change to medium-term demand.
“A lasting move back towards recent highs will need reassurance from the big AI spenders that investment plans remain intact, and if that arrives, sidelined buyers could quickly return,” said Britzman. “For now, this looks more like a healthy reset in the hottest corner of the AI market than the end of the memory trade.”
In terms of single-stock, Netflix Inc shares slid 11% after the company forecast a second-consecutive quarter of slowing sales growth, which has contributed to anxiety among investors about the streaming giant’s future. Intuitive Surgical Inc tumbled 9.8% after the company reported softer US growth for its da Vinci surgical robots in the second quarter.
Uploaded by Felyx Teoh
