Equity markets, led by declines in Nasdaq futures, extended losses on Tuesday amid growing investor caution about shares of companies tied to artificial intelligence chip production. Market participants are increasingly concerned about very high capital expenditures by firms and intensified competition from China while awaiting earnings reports from major Wall Street companies.
Among leading chipmakers in premarket trading, Nvidia fell 1.1 percent, Micron slid 4.4 percent, and Applied Materials dropped 3.6 percent. Taiwan Semiconductor Manufacturing Company (TSMC) shares listed in the U.S. were down 2.6 percent, and South Korea’s SK Hynix declined 3.6 percent.
Rising volatility and sector correction
Global markets have become more volatile this month as investors question whether further large-scale AI infrastructure investments — for example in semiconductors — are justified after those stocks posted significant gains in the previous quarter. The Roundhill Memory ETF fell 6.5 percent on Tuesday and has traded below its 50-day moving average for the past two weeks, a sign of weak short-term momentum. The Philadelphia SE Semiconductor Index has lost more than 20 percent from its June record high.
Markets have also been unnerved by signs that some of Wall Street’s largest companies, such as Alphabet and Tesla, may be drawing down cash to fund ambitious projects. At the same time, China is introducing cheaper AI models and strengthening its position in the highly competitive semiconductor industry.
Ipek Ozkardeskaya, chief analyst at Swissquote, warned that if Microsoft, Amazon or Meta report similar declines in free cash flow, it could intensify concerns that these companies will continue spending but increasingly finance those outlays through equity and bond issuance or borrowing.
Earnings and chip demand in focus
Investors will be watching the upcoming quarterly results from hyperscalers — Amazon.com, Meta, Apple and Microsoft — this week for evidence that their hundreds of billions of dollars in AI investments will pay off. Those reports are also expected to provide clues on demand for chips and other AI infrastructure. Shares of the four U.S. tech giants showed slight gains in premarket trading on Tuesday.
Fed decision and financing risks
The Federal Reserve’s two-day policy meeting concludes on Wednesday. According to LSEG data, traders assign only a 36.9 percent probability to a rate hike this week, but they largely expect at least a 25 basis-point increase by year-end. Higher interest rates would be another headwind for AI companies that increasingly rely on debt markets for financing.
Other market moves and geopolitics
Oil prices eased 2.6 percent to a one-week low after a fragile ceasefire between the United States and Iran held, despite reports of drone attacks from Saudi Arabia, Jordan and Iraq. U.S. President Donald Trump said the United States is having “good talks” with Iran and that there is a chance of reaching an agreement to end the conflict.
Overall, markets are being driven by doubts about the returns on massive AI investments, growing Chinese competition, and uncertainty ahead of key corporate earnings, while monetary policy and geopolitical developments add further risks.
