Dow sinks 486 points as AI selloff deepens, chip stocks extend losses

Wall Street's AI-fueled rally is unraveling as the Dow Jones Industrial Average opened sharply lower Friday, extending a deepening rout in semiconductor stocks.

The Dow Jones Industrial Average fell about 486 points, or 0.9%, in early trading Friday as investors continued to pull back from semiconductor stocks, extending a broader reassessment of the artificial intelligence-driven rally. The S&P 500 lost 1.1%, while the Nasdaq Composite dropped 1.7%.

The selloff reflects a valuation and momentum unwind in the AI-chip trade, with investors questioning whether the pace of AI-related capital spending can be sustained after months of strong gains, according to market analysis. The Philadelphia Semiconductor Index has fallen more than 19% from its late-June record high and was on track for its worst weekly performance since March 2025.

Nvidia shares fell about 3.4%, while Applied Materials and Lam Research each dropped more than 5%. The iShares Semiconductor ETF and the VanEck Semiconductor ETF both declined more than 3%. The weakness came despite strong quarterly results from Taiwan Semiconductor Manufacturing Co. and upbeat guidance from ASML, suggesting investors remain focused on broader concerns surrounding AI infrastructure spending rather than company-specific earnings.

The selloff accelerated losses from Thursday, when the S&P 500 fell 0.5% to 7,533.77, the Dow dipped 0.2% to 52,552.97, and the Nasdaq composite lost 1.5% to 25,881.95. Memory chipmakers were among the hardest hit Thursday, with US-listed shares of SK Hynix falling about 14% and the Roundhill Memory ETF declining almost 9%.

Technology stocks faced additional pressure after Netflix forecast third-quarter revenue and earnings below Wall Street expectations. Netflix shares plunged more than 11% despite reporting second-quarter results that were broadly in line with analyst estimates. Intuitive Surgical fell 11% after maintaining its da Vinci procedure growth forecast and warning that insurance-plan changes may be delaying patient care.

Oil rises as Middle East tensions escalate

Oil prices moved higher as the US military completed its sixth consecutive evening of strikes against Iran, targeting military infrastructure and logistics assets. US West Texas Intermediate crude traded above $81 a barrel, while Brent crude rose above $86 a barrel. The renewed conflict has further weakened the fragile truce reached last month and continued to disrupt energy flows through the Strait of Hormuz, a critical shipping route that normally carries about one-fifth of global oil supplies.

The CBOE Volatility Index climbed to its highest level in more than a week as investors adopted a more cautious stance. The US 10-year Treasury yield was around 4.57%, while the US dollar index ticked 0.3% higher to 100.78. Gold futures fell 1.8% to $3,980 an ounce.

Although major US banks delivered solid earnings earlier in the week and recent inflation data came in softer than expected, those positives failed to offset mounting concerns surrounding technology valuations. The selloff was not limited to US markets, with semiconductor shares also weakening across Asia-Pacific and European markets on Friday. Investors now face a critical question: whether the AI-driven rally that powered markets to record highs earlier this year can resume, or if the current selloff marks a more sustained rotation out of growth stocks.

This article is for informational purposes only and does not constitute investment advice.