Wall Street Highlights: Tech Stocks Drag S&P 500, Nasdaq Lower As TSMC Results Spur AI Concerns

The Nasdaq 100 Index declined 1.6% in New York, while the S&P 500 Index dropped 0.5%.

TSMC hiked sales and spending projections for the year, signaling its confidence in the demand for chips and data centers holding up through 2027 and beyond. However, American depositary receipts for the firm were down, while peers like Micron Technology Inc., Marvell Technology Inc. and Nvidia Corp. also declined.

"We're seeing another semiconductor stocks decline despite reporting very positive results and guidance," said Miller Tabak + Co.'s Matt Maley. "Some of this has to do with some higher spending plans, but there is no question that the initial response has been a 'sell the news' reaction for TSM."

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With TSMC's results, concern around AI - and the capital spending behind it - has been brought back to the forefront. Traders have become more critical over AI this year, rotating out of stocks linked to the technology on the basis that the spending has failed to produce meaningful returns. The Philadelphia Stock Exchange Semiconductor Index fell 4.3%.

However, the S&P 500 Equal Weighted Index climbed 1% to finish at an all-time high, beating the S&P 500 by the most since 2024 - a sign that the rest of the stock market is performing well even as the big tech names struggle.

Some like Paul Meeks, head of technology research at Freedom Capital Markets, still remain optimistic about prospects for the sector.

"Fundamentally, these companies have been performing well, and I expect the rest of the AI infrastructure ecosystem, as companies report earnings over the next couple of weeks, to confirm that strength," he said. "I don't see any slowdown in AI infrastructure spending until 2028 at the earliest. With the recent correction, many of these stocks are now relatively inexpensive."

In geopolitical news, the US launched fresh strikes against Iran on Thursday. The new US attacks began at 2 p.m. ET, according to US Central Command, with US forces aiming to "further degrade Iranian military capabilities" and followed earlier strikes that hit an oil tanker near Iran's main export terminal.

Brent crude hovered at around $85.

Traders also parsed fresh economic data. US retail sales rose modestly in June, dragged down by a drop in gas-station receipts that masked strong gains at some merchants. The report indicated continued resilience in consumer spending heading into the summer months.

"We still expect some moderation in economic growth in the coming months as consumer spending likely will be challenged by renewed firming in oil prices tied to the ongoing Iran war as well as a fading tailwind from this year's big tax refunds," said Gary Schlossberg, global strategist at Wells Fargo Investment Institute.

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Among single-stock moves, Alphabet Inc. dropped 4.4%, erasing $200 billion in market capitalization, after Bloomberg reported that Google is months behind schedule on delivering its Gemini 3.5 Pro AI model.

General Electric Co. fell after the world's largest jet-engine maker posted second-quarter results. United Airlines Holdings Inc. dropped as the carrier's updated full-year profit forecast trailed the average analyst estimate.

UnitedHealth Group Inc. shares gained after the health conglomerate raised its outlook for the year and reported quarterly profit that was ahead of Wall Street's views. AtaiBeckley Inc. surged after Eli Lilly & Co. agreed to purchase the psychedelic drugmaker for as much as $3.8 billion.

"In the short term, we need to see a move to some sort of resolution to the Iran and energy inflation risk for a sustained move higher," said Louis Navellier, chief investment officer at Navellier & Associates.