US STOCKS-S&P, Nasdaq drop on semiconductor selloff as AI spending concerns mount

The Nasdaq and S&P 500 plummeted to one-week lows due to sharp losses in semiconductor stocks amid growing concerns over debt-funded AI spending and a potential hawkish US 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 scrutinized growing debt-funded AI spending and braced for a more hawkish U.S. Federal Reserve. The ‌Philadelphia SE Semiconductor index tumbled 7.6%, while the S&P 500 tech sector index shed 3.2%.

Nvidia fell 3.3%, Alphabet lost 1%, while chipmakers Intel, Marvell Technology and Advanced Micro Devices fell between 5.8% and 9.4%. “Some of the news lately about AI raises questions about all the spending that’s being done and the capex ‌and ramping of the capacity for semiconductors," said Thomas Martin, senior portfolio manager at Globalt. Concerns over hyperscalers' debt-funded AI spending have contributed to the selloff. ‌Elon Musk's SpaceX, which debuted this month, has joined a list of megacaps tapping the bond market to raise capital.

Shares of SpaceX were last up 3.6%, following losses in the last three sessions. Memory chipmakers Micron Technology and SanDisk , among the best performers on the S&P 500 this year, fell 13% and 13.6%, respectively.

Micron's earnings results on Wednesday could offer ⁠clues on the ​outlook for the memory and AI ⁠chip sector after a searing rally this year. At 2:23 p.m. ET (1823 GMT), the Dow Jones Industrial Average rose 45.86 points, or 0.09%, to 51,758.57, the S&P 500 lost 86.06 points, or ⁠1.15%, to 7,386.73 and the Nasdaq Composite lost 463.45 points, or 1.77%, to 25,703.15.

The CBOE Volatility Index, Wall Street's fear gauge, hit an over-one-week high, climbing 1.9 points ​to 19.12. Six of 11 major S&P 500 sectors moved higher, with consumer staples rising the most at 1.7%. With highly priced tech ⁠shares coming under pressure recently, investors have shifted focus to other areas of the market.

Heavily battered software shares also popped, with ServiceNow rising 4.2%. 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.

Personal Consumption Expenditures Price Index data, the Fed's preferred inflation gauge, is expected on Thursday. 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. Declining ⁠issues outnumbered advancers by a 1.22-to-1 ratio on the NYSE and by a 1.04-to-1 ratio on the Nasdaq.

The S&P 500 posted nine new 52-week highs and five new lows while the Nasdaq Composite recorded 98 new ‌highs and 149 new lows.