U.S. equities ended the trading week on a down note Friday, with a deepening selloff in semiconductor shares dragging the broader market lower and raising new questions about the sustainability of the AI-driven rally. The S&P 500 slid 0.9% to a preliminary close of 7,463.93, while the tech-heavy Nasdaq Composite dropped 1.3% to 25,554.54. The Dow Jones Industrial Average also retreated, losing 0.5% to finish at 52,267.62.
The weakness was concentrated in the chip sector, which has seen a dramatic reversal in July. The PHLX Semiconductor Index fell roughly 1.3% on the day, bringing its month-to-date decline to nearly 17%. This sharp pullback comes despite the index still being up approximately 63% for the year, underscoring the volatility that has accompanied the rapid run-up in AI-related stocks.
Market analysts pointed to the growing influence of semiconductor stocks within major benchmarks as a key factor behind the broader selloff. The sector’s weighting in the S&P 500 has more than doubled in recent years, from roughly 8% three or four years ago to over 20% today, according to Paul Nolte, senior wealth adviser at Murphy & Sylvest. This concentration means that a downturn in chips can now offset gains in other sectors, effectively amplifying the market’s vulnerability to sector-specific shocks.
Earnings Growth and Valuation Concerns
The selloff occurred even as corporate earnings expectations continued to rise. Forecasts for S&P 500 second-quarter profit growth have climbed to 26.0%, up from 19.2% as of April 1. This divergence—falling stock prices alongside rising earnings projections—suggests that investors are increasingly focused on the high valuations of AI-related names rather than on the underlying profit picture.
“The shift points to a reset in concentration rather than a full-scale earnings downturn,” noted market participants. The chip sector’s outsized influence means that any reassessment of AI valuations can have a disproportionate impact on the overall index, even when earnings elsewhere remain solid.
Key Movers and Sector Performance
Among individual stocks, Nvidia (NASDAQ:NVDA) slipped roughly 1.7% as the closing bell approached, while Meta Platforms (NASDAQ:META) fell 2.8% and Alphabet (NASDAQ:GOOGL) dropped 2.4%. Disappointing outlooks also weighed on other sectors. Netflix (NASDAQ:NFLX) tumbled approximately 7.8% after projecting lower future earnings, and Intuitive Surgical (NASDAQ:ISRG) plunged 13.7% in late trade following a warning that insurance policy changes could delay patient treatments.
Market breadth deteriorated, with decliners outpacing advancers by a two-to-one margin on the New York Stock Exchange. On the Nasdaq, new lows exceeded new highs by a count of 169 to 65, signaling broad-based selling pressure.
Energy was the sole advancing sector within the S&P 500, as rising crude prices boosted oil-related stocks. Brent crude climbed 4.6% to close at $88.10 per barrel, driven by mounting supply concerns linked to the ongoing Iran conflict. The yield on the 10-year Treasury note slipped to 4.54% from 4.57% on Thursday, providing only modest relief for equity markets.
Weekly Performance and Outlook
For the week, the Nasdaq fell 2.8%, the S&P 500 declined 1.5%, and the Dow lost 0.7%. The coming week will be critical in determining whether the pullback was primarily technical in nature or reflects deeper fundamental concerns. A flurry of earnings reports from major companies is on the docket, including Alphabet on Wednesday, along with Intel (NASDAQ:INTC), Texas Instruments (NASDAQ:TXN), and Tesla (NASDAQ:TSLA).
Investors will be closely watching Alphabet’s results, particularly its capital expenditure plans for AI. “A reduction in capital expenditures could have effects throughout the AI supply chain,” warned Kevin Mahn, an investment manager. Meanwhile, robust earnings in other sectors could attract value-focused investors to beaten-down semiconductor stocks, though rising oil prices threaten to reignite inflation fears and keep interest rates elevated.
For now, the earnings floor appears to be holding, but valuations remain under scrutiny amid the concentrated gains in AI-related equities. The market’s ability to absorb further shocks will depend on whether the rotation out of growth stocks continues or stabilizes in the weeks ahead.
