The Nasdaq-100 index slid into correction territory on Tuesday (July 28) as chip and memory stocks sold off sharply worldwide, reflecting growing concerns about the artificial intelligence sector's long-term profitability and increased global competition. The Nasdaq-100, which tracks the top 100 nonfinancial companies on the Nasdaq exchange, has now dropped more than 10% from its most recent record high, signaling a significant shift in investor sentiment.

The selloff was triggered by investors questioning whether the massive investments in AI and related technologies can continue to deliver high returns. Over the past two years, semiconductor companies benefited from explosive demand for AI infrastructure, but the market is now reevaluating whether current stock prices already reflect years of perfect growth.

The impact was felt globally. Asian markets saw severe declines, with South Korea’s Kospi plunging as much as 11% and shares of Samsung Electronics and SK Hynix dropping more than 13%. Taiwanese and Japanese tech companies also suffered broad-based losses. In Europe, chip equipment maker ASML declined further after reports emerged that a Chinese state-backed company had begun mass-producing advanced lithography machines, increasing competition in an area previously dominated by Western firms.

In the United States, major semiconductor names like Nvidia, AMD, Intel, Western Digital, and Micron all traded lower, as did the broader VanEck Semiconductor ETF (SMH), which has fallen more than 17% in July alone. According to CNBC, this marks the ETF’s worst monthly performance since 2022. The selling pressure has extended to related sectors, with European and Asian markets mirroring the declines seen in U.S. chip stocks.

Several factors contributed to the downturn. Investors are increasingly concerned about the sustainability of AI spending, especially as technology giants such as Microsoft, Meta, Amazon, and Alphabet have committed hundreds of billions of dollars to AI infrastructure. Some experts warn that “circular funding”—where companies act as both customers and investors within the AI ecosystem—could amplify losses if demand slows.

Another major concern is China’s progress in semiconductor technology. Reports that Chinese firms are narrowing the technological gap with Western companies have prompted fears of intensified competition and potential downward pressure on chip prices. This follows news that a Chinese startup has produced an AI model rivaling top U.S. offerings, raising further questions about the competitive landscape.

Despite record profits across much of the semiconductor industry, the market’s focus has shifted to stock valuations rather than business fundamentals. Even strong earnings from major players have not been enough to calm investor nerves.

Looking ahead, the next two weeks could determine whether this sharp decline is a temporary correction or the start of a more significant downturn. Key technology companies like Microsoft, Meta, and Amazon are set to report earnings, and their guidance on AI investment will be closely watched. If companies indicate a slowdown in AI infrastructure spending, further pressure on semiconductor valuations and the broader Nasdaq-100 is likely.

For now, the market appears to be undergoing a broad repricing of risk, rather than responding to a single event. While long-term trends such as AI, enterprise digital transformation, and memory demand remain strong, investors are reassessing how much they are willing to pay for future growth in the sector.

National News