4 hours ago - Business
Why AI and semiconductor stocks stumbled
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AI and semiconductor shares hit a major air pocket again Wednesday, after logging a record-breaking Q2 rally.
Why it matters: Semiconductor shares have been leading the market higher recently, as the momentum behind the Magnificent 7 has faltered.
- But if chip stocks continue to retreat, it could mean trouble for markets more broadly.
Driving the news: The Philadelphia Stock Exchange Semiconductor Index, or SOX, started Q3 in the hole, tumbling 6.3%, with contributors like KLA (-12% on the day), Lam Research (-9.7%) and Applied Materials (-10%) dropping.
- Sandisk and Micron Technology— AI memory stocks that are the best-performing issues in the S&P 500 — both dove 10.6%.
- Other AI-boom trades weighed on broader indexes. Fiber optic cable maker Corning dropped 13.6%. Equipment maker Caterpillar fell roughly 7%, as did data center builder Vertiv.
- The Nasdaq Composite dropped 0.7%, while its high-flying large cap cousin, the Nasdaq 100, declined 1.5%. The S&P 500 was off by 0.2%.
Between the lines: As always, the catalyst for the sudden stumble is tough to identify conclusively.
- A report that Meta plans to start a cloud computing business to sell off excess data center capacity might have had something to do with it.
- "Excess data center capacity" is an unwelcome phrase for companies — and investors — riding the AI investment boom, which depends on companies continuing their massive capex plans.
- Or the midweek selloff may just be one of the periodic tumbles often seen in momentum trades, that is, stocks that have been rising and thus attract more traders to pile on in the hopes of further gains.
The bottom line: Momentum giveth. Momentum taketh away.
