Chip stocks extend rout as Fed holds rates, AI doubts grow

A broad semiconductor selloff deepened this week, dragging down shares of AMD Advanced Micro Devices, Inc. ↘ 1.47%, Nvidia ↘ 1.47%, Broadcom ↘ 2.62%, and memory makers as investors grew uneasy over the sustainability of AI infrastructure spending and the financing structures supporting it. The Nasdaq entered correction territory on Wednesday after the Federal Reserve held interest rates steady, compounding the pressure on technology stocks.

The Selloff

AMD fell more than 5% on Wednesday while Nvidia lost 3.6% and Broadcom declined 2.8%, according to the Associated Press. Memory names were hit harder, with Micron ↘ 2.22% and Seagate ↗ 0.44% each losing more than 8%, and the VanEck Semiconductor ETF ↘ 1.00% dropping 5% for its fifth straight session of losses. The Philadelphia Semiconductor Index has shed roughly $1.3 trillion in market value during July's broader chip rout.mymotherlode+2

The S&P 500 fell 1.5% to 7,316.15, the Dow Jones Industrial Average dropped 2.2%, and the Nasdaq 100 slid 2.1% on Wednesday. In Asia on Thursday, South Korea's Kospi fell another 1.3% after plunging more than 16% over the prior two days, while SK Hynix ↘ 3.12% lost 4% despite reporting record quarterly profit.tradingview+1

AI Financing Concerns

Two events on July 27 refocused attention on the sector's financial underpinnings. The Wall Street Journal News Corp ↘ 3.58% reported that Nvidia is in talks to guarantee roughly $250 billion in financing for an OpenAI data-center project in Ohio, a deal that would effectively make the chipmaker a guarantor for OpenAI's lease of a 10-gigawatt facility being developed by SoftBank's energy subsidiary. The arrangement raised questions about circular financing — where chipmakers and their customers extend credit to one another in ways that concentrate risk.tech.yahoo+2

The same day, Chinese memory chipmaker CXMT, formerly ChangXin Memory Technologies, surged about 466% in its Shanghai debut after raising 57.92 billion yuan ($8.6 billion) in China's largest semiconductor IPO, according to Reuters. CNBC reported that the listing intensified concerns about new competition for Western memory makers like Micron.finance.yahoo+2

Fed Adds to Pressure

The Federal Reserve's decision on Wednesday to leave rates unchanged for the fifth consecutive time further weighed on sentiment. Fed Chair Kevin Warsh reiterated his commitment to a 2% inflation target but offered markets fewer forward signals, pushing the 10-year Treasury yield up to 4.70%. "Parsimony, uncertainty, and volatility are the points put forward by Warsh as he attempts to change the Fed's policy regime," RSM Chief Economist Joseph Brusuelas wrote in a note.mymotherlode+1

AMD's August 4 earnings release will serve as the next major test of whether AI demand assumptions remain intact amid the sector's worst month since 2002.