- US stocks opened sharply lower amid concerns over AI investment sustainability
- Chip stocks were heavily sold off, leading the market decline on Friday morning
- Nasdaq Composite dropped 564.08 points or 2.18% to 25,319.21 at 9:34 a.m. EDT
US stocks opened sharply lower on Friday as investors dumped chip stocks amid mounting concerns over the sustainability of the artificial intelligence investment boom, while escalating tensions in the Middle East added to market anxiety by driving oil prices higher.
At 9:34 a.m. EDT, the Nasdaq Composite plunged 564.08 points, or 2.18%, to 25,319.21, leading losses among the major US. benchmarks. The S&P 500 fell 86.81 points, or 1.15%, to 7,446.96 after the opening bell.
The Dow Jones Industrial Average declined 541.32 points, or 1.03%, to 52,011.65 at 9:30 a.m. EDT.
The sell-off followed a weak premarket session, with Nasdaq-100 futures dropping nearly 2%, as investors continued to unwind positions in semiconductor and AI-related stocks.
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Chipmakers remained under heavy pressure. The iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH) fell more than 3%, while shares of Applied Materials, Lam Research, Intel, KLA Corp., and Arm Holdings dropped around 4% each. Nvidia and Micron Technology also traded more than 2% lower.
The weakness extended Thursday's semiconductor-led decline and came after Chinese startup Moonshot AI unveiled its latest AI model, claiming it narrows the gap with leading U.S. offerings.
The VanEck Semiconductor ETF is now down 6.9% this week, putting it on track for its third weekly decline in four weeks. Week-to-date, the S&P 500 has slipped 0.6%, the Dow is down 0.2%, and the Nasdaq has fallen 1.5%.
The selling pressure spread beyond the U.S., with semiconductor stocks dragging broader markets lower across Asia and Europe.
Strategists at BBH said investors are becoming increasingly cautious about the durability of the AI-led investment cycle.
"Investors are increasingly questioning the sustainability of the ongoing AI capital expenditure boom," BBH strategists said in a note on Friday.
They added that the Bank for International Settlements' annual economic report warned that "boom-bust cycles are a regular feature of past investment surges driven by transformative technologies."
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Not everyone turned cautious. Strategists at Barclays said the recent correction could create opportunities for long-term investors.
"While Tech volatility may persist in the near term, we believe that the reset in positioning should ultimately prove healthy, creating more attractive entry points for long-term investors targeting the structural AI theme," Barclays said.
Among individual stocks, Netflix slumped more than 11% after reporting second-quarter results that broadly matched expectations but issuing a weaker-than-expected earnings outlook.
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