Chip stocks slide into bear market in AI unwind: Markets wrap
AI Summary
The semiconductor sector has entered a bear market, driven by concerns over the sustainability of AI spending and increased competition, leading to a 20% drop in a key industry gauge. Despite strong earnings and demand trends, investors are questioning the longevity of growth, prompting profit-taking and volatility in AI-related stocks. Analysts suggest maintaining exposure to the AI theme while diversifying investments to mitigate risks.
A selloff in chipmakers gathered pace, driving the high-profile group of stocks to a bear market on worries that the artificial-intelligence spending spree is becoming harder to justify.
The cohort of semiconductor powerhouses saw its worst week since April 2025, with a key industry gauge sinking 20 per cent from a record.
A surprise breakthrough from Chinese AI startup Moonshot jolted the sector, which also joined broader equity losses on geopolitical tensions. The Nasdaq 100 lost 1.5 per cent. Oil jumped as the US and Iran traded attacks again.
“Those who were hoping for a placid summer Friday were in for a rude surprise,” said Steve Sosnick at Interactive Brokers. “The ostensible reasons were renewed Persian Gulf jitters that pushed oil prices higher, while reports that a new, inexpensive Chinese AI model rekindled DeepSeek-like concerns about that industry’s economics.”
Insatiable demand for all things related to AI had recently sent chip shares to their best-ever quarter. But volatility has resurfaced amid concerns about increased competition, possible overcapacity and whether big investments in the technology will pay off.
While earnings and demand trends remain strong, profit-taking suggests some investors are questioning how long the current pace of growth can continue, said David Morrison at Trade Nation.
“The question now is whether this will become yet another ‘buy the dip’ opportunity, or if the pace of selling accelerates as everyone rushes to the exit doors at the same time,” he added.
AI-related stocks have become more volatile as investors question both the pace and payoff of investments, but corporate earnings have not yet shown any slowdown in demand, according to Angelo Kourkafas at Edward Jones.
“The AI theme is likely maturing rather than breaking, which is a healthy part of how transformative investment cycles evolve,” he said. “Investors should maintain exposure to the AI theme, but complement it with more diversified and differentiated sources of return, including cyclical sectors, value-style investments, and international stocks.”
Sharp stock rotations are necessary for the equity rally to broaden beyond the tech sector, according to Citigroup Inc.’s Beata Manthey.
“The market has started to hope for some long-awaited broadening,” Manthey told Bloomberg Television. “For that to happen, you need to have some rotations, and rotations tend to happen in quite a violent way sometimes.”
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Original Article
Published on Hindu BusinessLine