The semiconductor sector's decline has exposed a fundamental problem with the AI investment narrative - the market has become too crowded, too capital-hungry, and too aggressively priced for even believers to question whether the market has already consumed too much of tomorrow's growth potential. As reported by Investing.com India, the AI story has become so crowded, so capital-hungry, and so aggressively priced that even believers are starting to ask if the market has already eaten too much of tomorrow's meal. This represents a significant shift from the previous bullish sentiment, where the AI theme was seen as the engine, soundtrack, and swagger of this bull market. The dispersion signal within the technology sector is flashing particularly brightly, with the spread between the best- and worst-performing quintiles now exceeding 120 percentage points, the widest since February 2000, just before the Dot Com peak in March of that year.
AI chip stocks experienced a devastating $1.3 trillion market value loss as major semiconductor companies plunged on Friday, marking the largest single-day decline since the COVID-19 pandemic in March 2020. According to reports from Reuters, the PHLX chip index slumped 10.3% in its deepest one-day decline since the coronavirus pandemic severely impacted global markets. The selloff was triggered by Broadcom's weak quarterly report that showed demand for its custom AI chips business falling short of investor expectations, continuing to ripple through Wall Street. The two-day rout extended losses from Thursday after Broadcom released its quarterly results showing a drop in demand for its custom AI chips relative to lofty expectations.
Nvidia, the world's most valuable chipmaker, fell approximately 6%, eliminating more than $300 billion from its market capitalization. As reported by Reuters, Micron Technology tumbled 13%, evaporating about $150 billion in market value. Recent investor favorite Marvell Technology gave back 17%, while Advanced Micro Devices lost almost 11%. One of the biggest beneficiaries of the AI race, Broadcom, lost 7.9%, bringing its two-day total loss to almost 20%. According to BlockBeats, the index dropped a cumulative 12% over Thursday and Friday sessions. The semiconductor complex was where the thunder was loudest, with chipmakers having powered the rebound from US-Iran war-driven lows and being on track for their strongest year since 1999, exactly the kind of performance that leaves little room for doubt once valuations start to matter again.
The semiconductor sector's decline spread across global markets, with technology stocks dragging broader US indices lower. According to Reuters, the Nasdaq Composite fell 1.4%, while the S&P 500 declined 0.7% and the Dow Jones Industrial Average slipped 81 points, or 0.2%. Investor sentiment was further affected by fresh labour market data showing continued strength in the US economy, with employers adding 172,000 jobs in May, roughly twice the number economists had expected. The stronger hiring figures added to concerns that the Federal Reserve may have less room to lower interest rates this year, pushing bond yields higher and weighing on equities. Despite the recent selloff, the chip index remains up 73% year to date and had reached a new all-time high on Wednesday before Friday's losses. The market's growth and rates tango continues, where good news is no longer simple good news - better growth arrives with a Fed question attached, making it difficult for equities to justify their altitude with less oxygen.
The weakness in technology shares spread across Asia, where several markets closed lower. According to Reuters, South Korea's Kospi tumbled 5.5% to 8,160.59 as technology giants came under pressure, with SK Hynix dropping 9.9% and Samsung Electronics falling 6.4%. Japan's Nikkei 225 lost 1.3% to close at 6,658.12, with chip-related shares among the biggest decliners, while Tokyo Electron fell 6.6% despite data showing Japanese real wages rose for a fourth consecutive month. Hong Kong's Hang Seng Index fell 1.2%, China's Shanghai Composite slipped 0.7%, and Australia's S&P/ASX 200 dropped 0.7%. In contrast, European markets were trading in positive territory by midday, with Britain's FTSE 100 rising 0.5%, Germany's DAX gaining 0.2%, and France's CAC 40 adding 0.6%. Korea has become the purest expression of the global AI trade, mixing leverage, speculation, retail participation, and semiconductor exposure into one combustible cocktail, with retail investors rushing into leveraged South Korean AI ETFs and investors aged 50 and older accounting for more than 60% of the ₹18.5 billion margin loan balance at Korea's top 10 brokerages during the first quarter.
