Micron drops 9%, Sandisk and Intel fall as chip rout deepens

U.S. semiconductor stocks lost $40 billion in market value over four sessions as AI-driven optimism gave way to a global rotation out of technology.

U.S. chip stocks tumbled for a fourth consecutive session as AI-fueled optimism unraveled, with Micron Technology Inc. falling 9% and dragging the broader semiconductor sector into a deepening sell-off.

"It's been a really broad-based rotation," Ross Mayfield, an investment strategist at Baird, said. "This momentum unwind has been a story that's been playing out for six to eight weeks now, and it has a lot more to do with the technicals of the market than any fundamental changes."

The VanEck Semiconductor ETF (SMH) dropped more than 3%, extending its losing streak to four days. Advanced Micro Devices Inc. fell 7%, while Sandisk Corp. and Intel Corp. also declined in premarket trading. The sell-off followed heavy losses in Asian semiconductor equities, as AI uncertainty infected global markets. The Dow Jones Industrial Average rose 624 points, or 1.2%, led by Sherwin-Williams Co. and Coca-Cola Co., as investors rotated out of technology into old-economy sectors.

The rotation threatens to deepen losses for semiconductor stocks, which had been the primary beneficiaries of the AI spending boom. The Technology Select Sector SPDR Fund (XLK) hit its lowest level since May 7, while the Health Care Select Sector SPDR ETF (XLV) and Financials Select Sector SPDR ETF (XLF) surged to record highs. The Federal Reserve's rate decision Wednesday could determine whether the rotation accelerates or reverses.

The sell-off in chip stocks reflects growing uncertainty about the sustainability of AI-driven demand. Asian semiconductor shares led the decline overnight, with losses cascading into U.S. premarket trading. The contagion effect highlights how interconnected global chip markets have become as investors reassess the pace and profitability of AI infrastructure spending.

Rotation Accelerates as Oil Prices Slide

Falling oil prices lent support to the broader market, with West Texas Intermediate crude futures falling 5% to just above $78 per barrel and Brent crude shedding more than 6% to around $83. The decline in energy costs provided a tailwind for consumer discretionary and industrial stocks, accelerating the rotation out of technology. However, Mayfield cautioned that the rotation depends on rates and oil staying at current levels. "It's hard to make a full case for consumer discretionary or financials or industrials continuing to catch a bid if rates are heading higher across the curve and oil is pushing up toward $100 a barrel," he said.

Fed Decision Looms Over Tech Sector

The Federal Reserve's two-day policy meeting concludes Wednesday, with investors expecting the central bank to hold rates steady. Fed funds futures priced in a quarter-point hike in September, according to the CME FedWatch Tool. The outcome could determine whether the rotation out of tech stocks deepens or stabilizes, particularly for semiconductor companies whose valuations depend on sustained AI investment.

Micron shares face the most immediate risk from the rotation, given the stock's elevated valuation on AI memory demand expectations. The sell-off has erased roughly $40 billion in combined market value from the top chip stocks over the past four sessions. Morgan Stanley's Mike Wilson attributed the selling to investors reassessing the AI trade's risk-reward profile. The Fed's decision Wednesday and upcoming earnings from Amazon, Apple, Meta Platforms, and Microsoft will determine whether this is a correction or the start of a deeper sector unwind.

This article is for informational purposes only and does not constitute investment advice.