Market Turmoil: Why Chip Stocks and AI Names Are Hitting New Lows

Chip stocks became the focal point of market weakness on Wednesday, as a broad sell-off in semiconductor names dragged broader indices lower. The S&P 500 retreated -0.51% to touch a 2-week low, while the Nasdaq 100 slid more sharply, falling -1.77% to reach its lowest level in seven weeks. This market pullback centered squarely on technology and semiconductor weakness, with investors rotating aggressively out of high-flying semiconductor plays and AI infrastructure-related names.

Advanced Micro Devices was the primary culprit, plunging more than -17% after issuing disappointing guidance for Q1 sales at $9.8 billion (plus or minus $300 million), falling short of some analyst expectations around $10 billion. This sharp decline in the company’s outlook immediately sparked broader concerns about AI demand trajectory, sending ripple effects throughout the semiconductor ecosystem.

Chip Stocks Lead the Decline: A Cascading Selloff Across Semiconductors

The weakness in chip stocks proved contagious, with major semiconductor names tumbling across the board. Sandisk fell more than -16%, while Micron Technology retreated more than -9%. Additional pressure hit Lam Research, which declined more than -8%, and Western Digital slid more than -7%. Applied Materials and Seagate Technology Holdings each fell more than -6%, while industry leaders like Nvidia, ASML, KLA Corp, and Broadcom all retreated more than -3%. The broad-based nature of this chip stocks sell-off underscored investor anxiety about the sustainability of AI-driven demand.

The severity of the chip stocks decline raised questions about whether current valuations adequately reflect underlying business fundamentals or if some excess had built up in these names.

Market Indices Mixed Despite Chip Stocks Collapse

While the Nasdaq 100 absorbed the brunt of chip stocks weakness, broader market reactions remained mixed. The Dow Jones Industrials actually posted a small gain of +0.53%, while March E-mini S&P 500 futures fell -0.44% and March E-mini Nasdaq futures declined -1.69%, suggesting overnight sentiment remained fragile.

This divergence reflected selective strength in non-semiconductor areas. Some healthcare and industrial names bucked the chip stocks trend by posting gains after better-than-expected earnings results.

Earnings Season Delivers Mixed Signals Amid Chip Stocks Pressure

Against the backdrop of chip stocks weakness, Q4 earnings season continued to deliver predominantly positive surprises. Of the 237 S&P 500 companies that have reported so far, 81% have beaten analyst expectations. According to Bloomberg Intelligence, S&P 500 earnings are anticipated to rise +8.4% in Q4, marking the tenth consecutive quarter of year-over-year growth.

However, excluding the Magnificent Seven megacap technology stocks—names closely associated with AI infrastructure—Q4 earnings growth moderates to +4.6%, highlighting how concentrated recent performance has been in a narrow group of mega-cap names. This concentration raises questions about whether the broader market can sustain momentum if interest-rate sensitive sectors face headwinds.

Specific winners emerged despite the chip stocks selloff. Super Micro Computer surged more than +13% after forecasting Q3 net sales of at least $12.30 billion, significantly exceeding consensus expectations of $10.25 billion. Eli Lilly gained more than +10% following strong Q4 revenue of $19.29 billion and a raised full-year guidance to $80 billion to $83 billion. Amgen closed up more than +8%, extending gains across the healthcare sector after reporting Q4 revenue of $9.87 billion that beat expectations.

In a notable M&A development, Silicon Laboratories soared more than +49% after announcing an acquisition by Texas Instruments for $7.5 billion, or $231 per share in cash.

The Crypto Connection: How Chip Stocks Weakness Impacted Digital Assets

The decline in chip stocks extended beyond semiconductor hardware into cryptocurrency-related equities. Bitcoin fell by more than -3%, triggering selling pressure across crypto-exposed stocks. Galaxy Digital Holdings and Mara Holdings each fell more than -8%, while Riot Platforms retreated more than -7%. Coinbase Global slid more than -6%, and MicroStrategy declined more than -2%, reflecting how correlated digital asset exposure has become with chip stocks performance.

This connection underscores the intertwined nature of AI infrastructure investment cycles and cryptocurrency market sentiment.

Economic Data: Mixed Signals That Offer Limited Clarity

Wednesday’s economic releases presented a mixed picture for market participants. The January ADP employment report showed companies added +22,000 workers, falling notably short of expectations of +45,000, suggesting potential labor market softening. This dovish data point should theoretically support bond prices and rate-sensitive sectors.

Conversely, the January ISM services index came in unchanged at 53.8, beating expectations of a decline to 53.5, indicating resilience in the service sector of the economy.

US MBA mortgage applications fell -8.9% during the week ended January 30, with the purchase mortgage sub-index declining -14.4% and the refinancing sub-index down -4.7%. The average 30-year fixed-rate mortgage declined 3 basis points to 6.21%, offering slight relief to prospective homebuyers.

These disparate signals reflected an economy navigating uncertainty—labor market softening on one hand, service sector resilience on the other—preventing any clear consensus about the Fed’s path forward.

Interest Rates and Treasury Markets: Digesting Policy Uncertainty

The Treasury market exhibited little net movement on Wednesday despite significant crosscurrents. March 10-year T-note futures rose 0.5 of a tick, while 10-year Treasury yield climbed 0.8 basis points to 4.274%. This modest move reflected offsetting forces: weakness in equities and softer-than-expected employment data provided support, while the stronger-than-expected ISM services report and upcoming supply from the Treasury’s quarterly refunding pressured prices.

The Treasury announced plans for $125 billion in quarterly refunding through sales of T-notes and T-bonds, right in line with expectations. Supply headwinds should cap near-term upside in fixed income markets as investors digest this new issuance.

Market pricing continues to reflect very low odds of rate cuts ahead, with swaps discounting only a 10% probability of a -25 basis point cut at the next Federal Reserve policy meeting scheduled for March 17-18.

A lingering negative factor for bond investors stems from last Friday’s announcement that President Trump nominated Keven Warsh as the next Federal Reserve Chair. Mr. Warsh, who served as a Fed Governor from 2006-2011, is generally perceived as more hawkish than other candidates under consideration, having frequently emphasized inflation risks during his tenure. This hawkish pivot in Fed Chair prospects added weight to longer-dated Treasury yields.

European Markets and Global Ripples

Global stock markets showed mixed performance. Europe’s Euro Stoxx 50 declined -0.41%, while China’s Shanghai Composite rose +0.85% and Japan’s Nikkei Stock 225 fell -0.78%.

European government bond yields moved in divergent directions. The 10-year German bund yield fell 3.2 basis points to 2.859%, while the 10-year UK gilt yield rose 2.9 basis points to 4.546%.

Eurozone inflation data showed improvement, with January core CPI revised downward to +2.2% year-over-year from the previously reported +2.3%, marking the smallest pace of increase in four years. The January S&P Composite PMI was also revised downward to 51.3 from 51.5, suggesting modest but continued expansion.

Notably, Eurozone December Producer Price Index fell -0.3% month-over-month and -2.1% year-over-year, matching expectations. The -2.1% year-over-year decline represents the steepest drop in 14 months, pointing to deflationary pressures in upstream pricing. Market swaps suggest just a 1% chance the European Central Bank implements a +25 basis point rate hike at Thursday’s policy decision.

Week Ahead: Earnings Acceleration and Key Economic Events

This week marks an inflection point for earnings season. A total of 150 S&P 500 companies are scheduled to report, maintaining the momentum that has seen 81% of reporters beat expectations so far.

Key economic releases deserving attention include Thursday’s initial weekly unemployment claims, expected to rise 3,000 to 212,000, and Friday’s University of Michigan consumer sentiment index for January, projected to decline 1.4 points to 55.0.

The intersection of chip stocks volatility, ongoing earnings reports, and economic data releases will likely dictate market direction in coming sessions. Investors remain cautious, searching for sustainable drivers of strength beyond the narrowly concentrated mega-cap technology names that have dominated recent performance.