Semiconductor selloff pulls down markets Wall Street ends lower on semiconductor selloff as AI spending concerns mount

The Nasdaq and the S&P 500 closed lower Tuesday, dragged down by sharp losses in semiconductor stocks as investors scrutinized growing debt-funded artificial intelligence spending and braced for a more hawkish Federal Reserve.

The Dow Jones Industrial Average slipped 47.22 points, or 0.09%, to 51,665.49. The S&P 500 fell 107.32 points, or 1.44%, to 7,365.47. The Nasdaq Composite slid down 579.56 points, or 2.21%, to 25,587.04.

The Philadelphia SE Semiconductor index tumbled 7.9% and the S&P 500 information technology sector index dropped 3.7%.

Nvidia dropped 4.1% and Alphabet fell 1% while chipmakers Intel, Marvell Technology and Advanced Micro Devices lost between 5.8% and 9.4%.

"Some of the news lately about AI raises questions about all the spending that's being done and the capex and ramping of the capacity for semiconductors," said Thomas Martin, senior portfolio manager at Globalt.

Concerns over hyperscalers' debt-funded AI spending contributed to the selloff.

Elon Musk's SpaceX, which debuted this month, joined a list of megacaps tapping the bond market to raise capital; its shares rose 1%, following losses in the last three sessions.

Memory chipmakers Micron Technology and SanDisk, among the best performers on the S&P 500 this year, both fell about 13%. Micron's earnings Wednesday could offer clues on the outlook for the memory and AI chip sector after a searing rally this year.

The CBOE Volatility Index, Wall Street's fear gauge, climbed 2.23 points to 19.52.

Six of the 11 major S&P 500 sectors moved higher, with consumer staples rising the most at 1.8%. With highly priced tech shares coming under pressure recently, investors shifted focus to other areas of the market.

Declining issues outnumbered advancers by a 1.31-to-1 ratio on the NYSE; there were 120 new highs and 187 new lows. On the Nasdaq, 2,181 stocks rose and 2,636 fell as declining issues outnumbered advancers by a 1.21-to-1 ratio.

Traders increasingly bet that the Federal Reserve will make a second interest rate hike by December, according to LSEG data, compared to expectations of just one 25-basis-point hike two weeks ago, as investors price in hawkish monetary policy under the central bank's new chairman, Kevin Warsh.

Personal Consumption Expenditures Price Index data, the Fed's preferred inflation gauge, is expected Thursday.

Investors also are watching developments in the Middle East. The U.S. Senate approved legislation Tuesday ?to halt U.S. military action against Iran, but ?it was unclear how it would affect the war as President Donald Trump's administration negotiates a peace agreement with Iran.