AI chip stocks tumble as investors rotate into software and cybersecurity

The PHLX Semiconductor Index lost 12% in two sessions as investors rotated from AI chip makers to enterprise software and cybersecurity stocks, while the Dow Jones Industrial Average closed at a record 52,900 on Thursday. The selloff was driven by concerns that massive AI infrastructure spending may not yield immediate returns, and a weak June jobs report reduced the odds of a Federal Reserve rate hike.

The chip rout

Micron Technology led the decline, falling more than 10% on Wednesday, while SanDisk, Applied Materials, and Lam Research each dropped roughly 10% Source: The Next Web. The selling intensified after reports that SK Hynix was slowing its expansion of high-bandwidth memory production, signaling that supply may be catching up with demand Source: The Next Web. In Asia, South Korea's Kospi sank nearly 8% on Thursday, with Samsung Electronics and SK Hynix tumbling over 7% Source: CNBC.

Where the money went

The rotation was not a flight from AI but a repricing of where returns will come from. Enterprise software stocks like ServiceNow, Snowflake, and Palantir benefited, with the iShares Expanded Tech-Software ETF up 35% from its April low Source: The Next Web. Cybersecurity stocks also surged after a report that Chinese AI models became nearly as capable at identifying vulnerabilities, driving demand for defensive tools Source: CNBC. Meta Platforms jumped 8% on news it plans to launch a cloud business to sell excess AI computing power Source: CNBC.

Macro and recovery

A weaker-than-expected jobs report — just 57,000 new positions versus a consensus of 100,000 — eased fears of further Fed tightening and supported the broader market Source: AP. On Friday, Asian markets rebounded: the Kospi gained 2.8%, Samsung rose 7%, and SK Hynix added 4.9% Source: AP. However, chip weakness lingered, with Tokyo Electron slipping 2.5% Source: Euronews.