Just one day after finishing a spectacular three-month period, chip stocks that had soared experienced sharp drops as the third quarter began.
Intel declined 9%, while competitor Advanced Micro Devices fell 7%. During the second quarter, these three companies had surged, collectively gaining $2 trillion in market value amid bets that the AI expansion would demand more memory and central processing units.
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Applied Materials, KLA Corp., and Lam Research each declined by at least 10% - these equipment suppliers had more than doubled in the previous quarter.
A factor weighing on the market was a report suggesting Meta, a major purchaser of AI infrastructure, might rent out unused computing capacity. This sparked concerns that the supply of AI processing power could be approaching demand levels. Meta belongs to a select club of hyperscalers - internet firms investing hundreds of billions annually in AI data center construction. Investors saw the development favorably, and Meta's stock rose more than 9% on Wednesday, following a weak second quarter. KeyBanc Capital Markets analysts, who maintain a buy rating on the stock, told clients in a note that the shift "positions Meta more into the enterprise side of the market, which could provide more immediate return on investment."
Richard Saperstein, Treasury Partners' chief investment officer, explained that his strategy is to "stick with the hyperscalers" because he believes the market is acknowledging their dominance in the AI sector. "Earnings are accelerating, yet multiples are compressing," Saperstein said on CNBC's "Closing Bell." "All I can attribute that to hyperscalers have been valued as capital intensive and asset-heavy versus asset-light."
This sell-off is part of a broader pattern where investors are rotating out of high-growth tech names into other sectors, amid uncertainty about the pace of AI adoption. While chipmakers continue to report robust earnings, the market is pricing in a potential slowdown in capital spending by hyperscalers. Analysts remain divided on whether the AI boom will sustain its current momentum.
Any anxieties affecting certain infrastructure stocks are not connected to the latest earnings reports. Last week, Micron announced that its revenue more than quadrupled in the most recent quarter, and its gross margin - profit after subtracting cost of goods sold - soared to 84.9% from 39% a year earlier.
Despite strong earnings, some market participants worry that the massive capital expenditures by hyperscalers may not yield immediate returns. However, the long-term demand for AI processing power remains robust, according to industry analysts.
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