The Nasdaq and the S&P 500 have plunged to over one-week lows, dragged down by sharp losses in semiconductor stocks as investors braced for a more hawkish Federal Reserve and scrutinised growing debt-funded AI spending.
If losses hold on Tuesday, the Nasdaq 100 would lose over $1 trillion in market value. Nvidia fell 3 percent, Alphabet shed 1.2 percent, and chipmakers Intel, Marvell Technology and Advanced Micro Devices fell between 6.2 percent and 8.7 percent.
Memory chipmakers Micron Technology and SanDisk , among the best performers on the S&P 500 this year, slumped 12 percent and 13 percent, respectively.
The Philadelphia SE Semiconductor index tumbled 7.3 percent, while the S&P 500 tech sector index shed 3.2 percent.
A sharp selloff in the previous session rocked US tech heavyweights, driven by doubts over hyperscalers' debt-backed AI spending despite stretched valuations.
"The AI trade became one of the most crowded trades in global markets. When everybody owns the same stocks, the exit door becomes very small very quickly," said Nigel Green, chief executive of investment adviser deVere Group.
At 09:35 a.m. ET, the Dow Jones Industrial Average fell 395.32 points, or 0.76 percent, to 51,317.39, the S&P 500 lost 114.96 points, or 1.54 percent, to 7,357.83 and the Nasdaq Composite lost 533.73 points, or 2.04 percent, to 25,632.87.
The rate-sensitive Russell 2000 index fell 1.7 percent. The CBOE Volatility Index, Wall Street's fear gauge, hit an over one-week high, climbing 2.92 points to 20.13.
Four of 11 major S&P 500 sectors moved higher, with consumer staples rising the most at 1.2 percent. With highly priced tech shares coming under pressure recently, investors have shifted focus to other areas of the market.
Heavily battered software shares also gained with ServiceNow and Atlassian up 2.5 percent each, while Adobe and Salesforce added 1.4 percent and 1.2 percent, respectively, following Monday's losses.
Plunge in SpaceX rattles investor confidence
Shares of Elon Musk's SpaceX fell 4.8 percent. More than $600 billion was wiped off the company's market value over the past three sessions. SpaceX, which debuted earlier this month, joined a list of megacaps to tap the bond market to raise capital.
"SpaceX is not yet part of the Nasdaq indexes, but the fact that it is jumping on the bond train to fund excessive AI and infrastructure spending revives earlier concerns that Big Tech may be spending too much on AI infrastructure and increasingly financing that spending through debt," said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank.
Traders are increasingly betting on a second interest rate hike by the US Fed by December, according to LSEG data, compared to expectations of just one 25-basis-point hike two weeks ago, as investors price in hawkish monetary policy under new Chair Kevin Warsh.
The S&P 500 is heading for its strongest quarterly gain in six years, buoyed by a Middle East ceasefire and stronger-than-expected earnings, even as concerns over stretched AI stock valuations resurface.
Micron's results, expected on Wednesday, could offer some clues on the outlook for the memory and AI chip sector after a searing rally this year.
Investors are keeping a close eye on developments in the Middle East after the US waived sanctions on Iran for 60 days after the first round of talks under a nascent peace deal.
The focus this week will be on the closely watched Personal Consumption Expenditures Index data, the Federal Reserve's preferred inflation gauge. The data is expected on Thursday.
Declining issues outnumbered advancers by a 2.12-to-1 ratio on the NYSE and by a 1.65-to-1 ratio on the Nasdaq.
The S&P 500 posted two new 52-week highs and three new lows, while the Nasdaq Composite recorded 19 new highs and 95 new lows.
