Semiconductor shares posted their steepest weekly decline in more than a year as concerns about overheated artificial intelligence spending weighed on major indexes despite strong early second-quarter earnings results.
By yourNEWS Media Newsroom
Wall Street closed lower Friday as a selloff in semiconductor and artificial intelligence-related stocks spread into a broader retreat from risk, leaving all three major U.S. stock indexes with losses for both the session and the week.
Chip stocks initially led the decline before weakness expanded across the market as investors reassessed the pace of gains tied to the artificial intelligence boom.
The Philadelphia Semiconductor Index recorded its worst weekly performance in more than a year and has fallen nearly 18% since the beginning of July.
Despite that sharp pullback, the index remained approximately 65% higher for the year, far outpacing the S&P 500’s nearly 9% advance during the same period.
Some investors have begun preparing for a slowdown in the nearly $1 trillion wave of artificial intelligence spending that has helped drive semiconductor and technology shares higher. A number of active fund managers have already reduced their exposure to the sector.
“It’s like the market has chip fatigue,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska.
“Chip stocks are down three of the last four weeks, and it’s the same worries, the same concerns; those stocks got way ahead of themselves, and now they’re coming back to Earth,” Detrick said.
According to preliminary closing data, the S&P 500 dropped 75.99 points, or 1.01%, to finish at 7,457.78.
The Nasdaq Composite declined 370.83 points, or 1.40%, to close at 25,511.12.
The Dow Jones Industrial Average fell 394.01 points, or 0.75%, to 52,158.96.
Energy was the strongest-performing major sector in the S&P 500 as crude oil prices rose amid signs of intensifying hostilities in the war involving Iran.
The gains in energy shares were not enough to offset the broader decline in technology and other risk-sensitive areas of the market.
The downturn came despite a strong start to second-quarter earnings season.
Forty-nine companies in the S&P 500 had reported results, with 90% exceeding analysts’ expectations, according to LSEG.
Analysts now expect aggregate earnings for companies in the index to rise 26% from the same period a year earlier.
That estimate was substantially higher than the 19.2% growth forecast recorded April 1.
“It’s early in earnings season, but we’re off to a tremendous start,” Detrick said. “Over the next several weeks, we’re going to get a lot more sectors and industries reporting. But so far, the banks have really started us off on the right foot.”
Several major companies contributed to Friday’s weakness.
Netflix shares fell after the streaming company issued an earnings forecast below Wall Street expectations, raising questions about whether its recent content and revenue momentum can continue at the same pace.
Uber Technologies declined after the ride-hailing company announced plans to acquire Germany’s Delivery Hero in a transaction valued at nearly $15 billion.
Intuitive Surgical also fell after the medical-device manufacturer left its growth forecast for procedures using the da Vinci surgical system unchanged.
The company warned that changes involving insurance plans may be causing patients to delay medical care.
Economic data released Friday offered a mixed picture.
Consumer sentiment rose to its highest level in five months during July, indicating some improvement in household confidence.
Housing data remained weaker, however, as single-family housing starts and building permits both declined.
Industrial production increased by only 0.1%, signaling limited momentum in the manufacturing and industrial sectors.
The week’s market action reflected a growing divide between strong corporate earnings and investor concerns that the valuations of semiconductor and artificial intelligence-related companies had advanced too quickly.
The chip sector remains one of the strongest areas of the market for the year despite its recent losses, but the nearly 18% July decline shows that investors are becoming more cautious about the sustainability of the spending boom.
With most S&P 500 companies still scheduled to report second-quarter results, investors will be watching whether strong earnings in banks and other early reporters extend to additional industries.
The market will also continue assessing whether the semiconductor retreat remains concentrated within the AI trade or develops into a more prolonged and widespread correction.
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