US STOCKS-Wall St tumbles on tech selloff as concerns about hawkish Fed, AI spending mount

The Nasdaq and S&P 500 plummeted to one-week lows, driven by sharp losses in semiconductor stocks amid concerns over debt-funded AI spending and a potential hawkish Federal Reserve.

The Nasdaq and the S&P 500 fell to over one-week ‌lows ​on Tuesday, dragged down by sharp losses in semiconductor stocks as investors braced for a more hawkish Federal Reserve and scrutinized growing debt-funded AI spending.

If losses hold, the Nasdaq 100 would lose over $1 trillion in market value. Nvidia fell 3%, Alphabet shed 1.2%, and chipmakers Intel, Marvell Technology and ‌Advanced Micro Devices fell between 6.2% and 8.7%. Memory chipmakers Micron Technology and SanDisk , among the best performers on the S&P 500 this year, slumped 12% and 13%, respectively.

The Philadelphia SE Semiconductor index tumbled 7.3%, while the S&P 500 tech sector index shed 3.2%. A sharp selloff in the previous session rocked U.S. tech heavyweights, driven by doubts over hyperscalers' debt-backed AI spending despite stretched valuations.

"The AI trade became one of ‌the most crowded trades in global markets. When everybody owns the same stocks, the exit door becomes very small very quickly," said Nigel Green, chief executive of investment adviser deVere Group. At ‌09:35 a.m. ET, the Dow Jones Industrial Average fell 395.32 points, or 0.76%, to 51,317.39, the S&P 500 lost 114.96 points, or 1.54%, to 7,357.83 and the Nasdaq Composite lost 533.73 points, or 2.04%, to 25,632.87.

The rate-sensitive Russell 2000 index fell 1.7%. The CBOE Volatility Index, Wall Street's fear gauge, hit an over one-week high, climbing 2.92 points to 20.13. Four of 11 major S&P 500 sectors moved higher, with consumer staples rising the most at 1.2%. With highly priced tech shares coming ⁠under pressure recently, ​investors have shifted focus to other areas of the ⁠market.

Heavily battered software shares also gained with ServiceNow and Atlassian up 2.5% each, while Adobe and Salesforce added 1.4% and 1.2%, respectively, following Monday's losses. Shares of Elon Musk's SpaceX fell 4.8%. More than $600 billion was wiped off the company's market ⁠value over the past three sessions. SpaceX, which debuted earlier this month, joined a list of megacaps to tap the bond market to raise capital.

"SpaceX is not yet part of the Nasdaq indexes, but the fact that it ​is jumping on the bond train to fund excessive AI and infrastructure spending revives earlier concerns that Big Tech may be spending too much on AI infrastructure and increasingly financing ⁠that spending through debt," said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank. Traders are increasingly betting on a second interest rate hike by the U.S. Fed by December, according to LSEG data, compared to expectations of just one 25-basis-point hike two weeks ago, ⁠as ​investors price in hawkish monetary policy under new Chair Kevin Warsh.

The S&P 500 is heading for its strongest quarterly gain in six years, buoyed by a Middle East ceasefire and stronger-than-expected earnings, even as concerns over stretched AI stock valuations resurface. Micron's results, expected on Wednesday, could offer some clues on the outlook for the memory and AI chip sector after a searing rally this year.

Investors are ⁠keeping a close eye on developments in the Middle East after the U.S. waived sanctions on Iran for 60 days after the first round of talks under a nascent peace deal. The ⁠focus this week will be on the closely ⁠watched Personal Consumption Expenditures Index data, the Federal Reserve's preferred inflation gauge. The data is expected on Thursday.

Declining issues outnumbered advancers by a 2.12-to-1 ratio on the NYSE and by a 1.65-to-1 ratio on the Nasdaq. The S&P 500 posted two new 52-week highs and three new lows, while the Nasdaq ‌Composite recorded 19 new highs ‌and 95 new lows.