Nasdaq-100 correction looms as semiconductor stocks slide again
The Nasdaq-100 was 9.4% below its June high Tuesday as chip stocks sank and investors questioned the AI buildout.
By Frankie Delgado · News Reporter
3 min read
The Nasdaq-100 correction watch is getting louder after another rough day for semiconductor stocks, with FactSet data cited by MarketWatch showing the tech-heavy index down 9.4% from its early June peak on Tuesday.
A market correction generally means a drop of about 10% from a recent high. By that yardstick, the Nasdaq-100 was sitting just shy of the line as the once-blistering AI hardware trade kept losing heat.
The latest pressure came from chip stocks, which had helped carry major indexes including the S&P 500 and Nasdaq Composite to records during the second quarter, according to MarketWatch. The PHLX Semiconductor Index, a widely watched gauge of U.S.-traded chip names, was down 24.5% from its late-June record as of Tuesday, FactSet data showed.
Why is the Nasdaq-100 near a correction?
The drag is coming from semiconductor shares and weakness in some megacap technology stocks tied to the AI boom, including Microsoft and Alphabet, MarketWatch reported. The concern is less about demand for chips and more about whether the enormous spending on AI infrastructure will generate enough return.
Dennis DeBusschere, chief market strategist at 22V Research, wrote in commentary shared with MarketWatch that investors still have too many unanswered questions about the AI buildout. He said the return on investment from hyperscalers and the scale of AI value creation remain unresolved.
The selloff has been harsher in some chip-related names outside the Nasdaq-100. MarketWatch reported that Sandisk has lost more than half its value since a late-June peak.
The latest bout of volatility began overnight in Asia, according to MarketWatch, where South Korean memory-chip heavyweights Samsung and SK Hynix were hit hard, with another round of trading halts. Fears about Chinese competition were cited as at least part of the reason.
AI earnings have not calmed the market
Wall Street analysts initially hoped the late-June wobble in semiconductors would fade once major companies reported strong earnings, MarketWatch reported. Strong updates from Alphabet and Celestica, along with upbeat comments from CEOs including Nvidia’s Jensen Huang and Amazon’s Andy Jassy, have not been enough to settle the trade.
Jeffrey Favuzza, an equities trader at Jefferies, wrote in commentary provided to MarketWatch that it is unclear what would restart the AI trade if strong numbers are no longer rewarded, beyond a cleanup of crowded positioning.
MarketWatch reported that traders had piled into leveraged products such as ETFs during the second-quarter surge in semiconductors. Those trades are now being shaken out, though whether the pullback is only a positioning reset or something larger remains unsettled.
Debt worries are adding to the chip-stock chill
The AI buildout is being funded by hyperscalers using cash and, increasingly, debt and equity issuance, according to MarketWatch. The report cited LSEG data showing that falling forward free cash flow for a basket of hyperscalers has been mostly offset by rising expected cash flows for a group of semiconductor stocks.
Credit-market signals are also flashing. MarketWatch, citing FactSet, reported that credit default swap spreads tied to debt from Nvidia and hyperscalers including Alphabet, Amazon, Meta, Microsoft and Oracle have widened, feeding worries about higher capital costs.
John Velis, BNY’s Americas macro strategist, told MarketWatch there is “a lot going on,” pointing to concerns about China’s chip capabilities and the cost of capital for the U.S. AI buildout. He said rising demand for capital, including likely record investment-grade corporate-bond issuance in 2026 and more tech IPOs, can push borrowing costs higher.
Beyond the Nasdaq-100, the Nasdaq Composite fell Tuesday and stood 8.2% below its early-June record close, according to Dow Jones Market Data. The S&P 500 gained 0.2%, while the Dow Jones Industrial Average rose 1% and was 0.6% from its early-July record.
This story draws on original reporting from MarketWatch.