U.S. stocks lost ground as hawkish Federal Reserve commentary, a sharp semiconductor selloff, and renewed scrutiny of AI investment returns hit risk appetite at the same time. Tech shares were under pressure across the board, and the AI supply chain turned into one of the main areas where investors took profits.
The three major U.S. indexes all finished lower. The Dow Jones Industrial Average fell 0.20%, the S&P 500 dropped 0.51%, and the Nasdaq Composite slid 1.47%. Economic data in the U.S. still pointed to resilience, but concentrated selling in chip stocks made the AI trade the biggest drag on the market.
Firm U.S. data pushes back against rate-cut hopes
Instead of lifting sentiment, stronger data gave hawkish Fed officials more room to argue against easing expectations. U.S. June retail sales excluding gasoline stations rose 0.7% month over month, initial jobless claims fell to 208,000 last week, and the Philadelphia Fed manufacturing index jumped to 41.4.
Morgan Stanley Wealth Management said the figures showed consumers were still spending and that there were no real signs of loosening in the labor market. Goldman Sachs, for its part, raised its second-quarter GDP tracking estimate to 2.4%.
What carried more weight for markets, though, was the latest round of Fed remarks. Dallas Fed President Lorie Logan said she supports modest rate hikes and warned that a single month of softer CPI was "not enough." If inflation does not fall back to 2% on its own, she said policy restraint would be needed. Kansas City Fed President Jeff Schmid then repeated that inflation remains his core concern and said some price increases should not be ignored.
Fed Vice Chair Philip Jefferson also publicly discussed AI and inflation for the first time. He said that if AI infrastructure investment, computing buildout, and consumer demand expand faster than productivity improves, AI could become a new source of inflation over the next few years. That puts AI spending inside the Fed’s policy conversation, not just inside the tech sector.
Oil tests the $80 line as gold and silver retreat
Tensions in the Middle East remained elevated. Iran launched phase 11 of what it called "Lightning Action," using drones to attack a U.S. military base in Bahrain. The U.S. stepped up military strikes on Iran, including targets near the Strait of Hormuz. Iran warned Washington not to touch the strait and called it an "uncrossable red line."
WTI crude rose to around $81 overnight before quickly pulling back and settling at $79. A trader at CIBC Private Wealth Group said the physical market had not yet sent a strong signal of severe supply shortages, which kept traders from pushing prices up blindly. Even so, the $80 level has become a key threshold for broader risk assets. If U.S. crude holds above it, markets may need to reprice the chain linking higher oil, inflation expectations, Treasury yields, and tech valuations.
Precious metals also corrected sharply. Spot gold fell below the $4,000-an-ounce mark, with a daily loss of more than 2%. Spot silver dropped below $55 an ounce and hit its lowest level since late November last year. Institutions including Fidelity International still hold to a longer-term bullish view, saying central bank buying and macro uncertainty remain supportive, though higher rates and a stronger dollar continue to weigh in the near term.
Semiconductor index enters a technical bear market
The clearest move of the session was inside semiconductors rather than the broader indexes. The Philadelphia Semiconductor Index fell 4.29% and entered a technical bear market after dropping more than 22% from its mid-June high. The semiconductor ETF lost 3.70%, while the technology sector ETF fell 2.24%.
Taiwan Semiconductor Manufacturing Co. reported second-quarter net profit of NT$706.6 billion and a gross margin close to 68%. It also raised full-year capital spending to $60 billion to $64 billion and lifted its full-year sales growth forecast to above 40%. Under normal market logic, those figures would reinforce the case for strong AI demand. Traders sold the stock anyway, with attention turning to a different issue: the higher AI capital spending goes, the longer the return cycle may become.
Memory stocks took the hardest hit. South Korean regulators tightened rules on single-stock leveraged ETFs by raising the minimum margin requirement from KRW 10 million to KRW 30 million, limiting collateral to cash, capping purchases at 20 shares per trade, and banning new single-stock leveraged products. That move triggered deleveraging pressure, and high-beta names such as SK Hynix, SanDisk, Seagate, and Western Digital were sold heavily.
JPMorgan said hedge funds had cut AI-related exposure and positions in leveraged ETFs sharply over the past five to six weeks. Bloomberg strategist Tatiana Darie said the selloff in chip stocks was approaching the technical threshold that had marked several rebounds in recent years, but whether the group can stabilize will depend on whether hyperscale cloud providers keep raising AI capital expenditures.
OpenAI business-model debate intensifies
Debate over OpenAI’s business model also kept building in overseas markets. Longtime AI bear Ed Zitron published a lengthy essay arguing that the real AI bubble is, in essence, an "OpenAI bubble." If OpenAI fails, he wrote, it could become the AI era’s "Lehman Brothers," sending shock waves through data centers, AI infrastructure, and global tech valuations.
Others took a different view. Long-term investors including Howard Marks said AI remains a general-purpose technological revolution and that the industry is still in the early stages of commercialization, making it too early to dismiss the whole space as a bubble.
How individual names moved
Memory-chip stocks fell across the board. SK Hynix plunged 13.69%, SanDisk dropped 12.63%, Seagate Technology lost 10%, Western Digital fell 9.22%, and Micron declined 5.65%, with the group’s market value slipping back below $1 trillion. The tighter South Korean rules on single-stock leveraged ETFs were seen as the immediate trigger, while concerns about aggressive capacity expansion and future supply pressure added to the selling. Money moved quickly out of richly valued AI hardware names, making memory the weakest segment of the day.
Optical communications names also remained under pressure. Corning fell more than 9%, and Lumentum dropped more than 6%. Investors worried that the pace of future data-center spending growth could slow, which would affect demand growth for optical modules and communications equipment. Positioning in AI infrastructure was reduced at the same time.
Alphabet fell 4.44%. The release of the Gemini 3.5 Pro flagship model was delayed by several months from the original plan because model performance, especially coding capability, had not yet met internal expectations. That fed concern about Alphabet’s competitive position in AI. Elsewhere in the large-model group, Meta fell 2.46% and Amazon lost 1.99%.
NVIDIA dropped 2.40%. The company introduced the Cosmos 3 Edge world model for robotics and vision agents and plans to form an embodied AI industry alliance in Japan. Japan is also planning to procure 27,500 next-generation Rubin chips for local robotics AI models. Those product catalysts were not enough to offset broader deleveraging in AI hardware. Related chip names also fell, with TSMC ADR down 2.25%, AMD down 5.33%, and Intel down 5.84%.
Apple rose 1.76% and hit a fresh high. The report said an OLED version of the iPad mini could arrive as soon as this fall, with a launch expected around October, while entry-level iPad and iPad Air models are due for updates next year. iPad sales have beaten Wall Street expectations for two straight quarters, reinforcing the hardware recovery narrative.
SpaceX fell 3.08% after its first major Starship test-flight cancellation since the IPO. Elon Musk said some engines failed to start, triggering an automatic launch abort. Risk appetite for recent listings also weakened, with the weighted average return of U.S. IPO companies this year dropping to 6%, compared with an about 11% gain for the S&P 500.
Netflix fell more than 8% in after-hours trading. Its Q2 results met expectations, but guidance for Q3 revenue growth marked the lowest pace in nearly three years, reviving concern that growth is topping out. The company said it would step up spending on live sports, video podcasts, and AI content production, but short-term investors focused on the softer outlook.
Oracle lost 6.25%. Investors remain concerned about heavy capital spending tied to AI cloud infrastructure, and the stock has pulled back noticeably from recent highs. Piper Sandler, however, kept its overweight-equivalent "buy" rating and a $225 price target, saying capital spending should translate into larger cloud compute resources and support future revenue.
What markets are watching next
From July 17 to July 20, the World Artificial Intelligence Conference in Shanghai and its high-level global governance meeting will be in focus, with attention on China’s AI deployment results and governance proposals and how they may affect global standards.
From July 18 to July 19, the AGI Summit in San Francisco will be another event on the calendar. Developments from companies including OpenAI could directly shape how U.S. equity markets price AI valuations.