Nasdaq drops 1.5% as chip stock selloff overshadows TSMC's record profit

The Nasdaq Composite fell 1.5% to 25,881.95 on Thursday as a broad selloff in semiconductor stocks overshadowed better-than-expected results from Taiwan Semiconductor Manufacturing Co.

"The weight of chips in the S&P 500 has grown from 8% to over 20% in the past few years," said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest. "If you look at the rest of the market, it's doing fine."

The S&P 500 lost 0.5% to 7,533.77, while the Dow Jones Industrial Average slipped 0.2% to 52,553.32. Technology was the worst-performing S&P 500 sector, falling 1.8%, with the Philadelphia Semiconductor Index dropping 4.3%. Memory-chip makers led the decline: SanDisk tumbled 13%, Seagate Technology fell 10%, and Micron Technology lost more than 5%. U.S.-listed shares of TSMC slipped 2.3% even after the world's largest contract chipmaker posted a 77% jump in quarterly profit and raised its full-year capital expenditure forecast to as much as $64 billion.

The selloff shows how elevated expectations have become for a chip sector that has surged nearly 70% this year, leaving even strong earnings vulnerable to profit-taking. With the Federal Reserve's next meeting in September and the third wave of Trump tariffs beginning next week, investors face competing narratives about the durability of the AI-driven rally.

Healthcare provided the main counterweight, with the sector rising 2.2%. UnitedHealth Group gained 1.2% after reporting adjusted earnings of $6.38 per share, well above the $4.87 consensus, and lifting its full-year profit outlook to as much as $20 a share. Abbott Laboratories surged 11% to lead the S&P 500 after also beating estimates and raising guidance.

Breadth data showed a mixed picture beneath the headline weakness. On the New York Stock Exchange, declining issues outnumbered advancers by a 1.08-to-1 ratio. The Nasdaq saw a wider 1.64-to-1 spread, with 2,979 stocks falling versus 1,817 rising. The S&P 500 recorded 42 new 52-week highs and just two new lows, while the Nasdaq logged 197 new highs and 155 new lows. Trading volume on U.S. exchanges totaled 17.19 billion shares, below the 21.19 billion 20-day average.

The 10-year Treasury yield edged up one basis point to 4.57%, while the U.S. dollar index rose 0.3% to 100.78. Gold futures fell 1.8% to $3,980 an ounce. Oil prices declined modestly, with West Texas Intermediate crude down 0.7% to $79 a barrel, as traders assessed renewed fighting in Iran after the collapse of a short-lived ceasefire.

Earnings Season Tests High Expectations

Beyond chips, the second-quarter earnings season delivered several beats. United Airlines fell 1.8% after surging oil prices weighed on its forward guidance. GE Aerospace slid 4.1% despite lifting its 2026 profit forecast. J.B. Hunt Transport Services jumped 7% after reporting profit and revenue above analysts' estimates. S&P 500 companies are expected to post aggregate earnings growth of 24.8% from a year earlier, with technology earnings alone seen jumping 65.5%, according to LSEG data.

The divergence between chip stocks and the rest of the market suggests a rotation may be underway, with investors questioning whether AI-related spending can sustain the semiconductor sector's valuation after a 70% year-to-date rally. The next major test comes with Netflix's results after Thursday's close, followed by a wave of Big Tech earnings in the coming weeks.

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