Wall Street ended lower on Friday, July 17, as a selloff in artificial intelligence (AI)-related stocks broadened into a broader risk-off sentiment. The Philadelphia SE Semiconductor Index (.SOX) confirmed it had entered a bear market, closing 20.2% below its June 22 record high. The index has tumbled over 18% in July alone, though it remains up nearly 65% year-to-date, compared to the S&P 500's nearly 9% gain.
All three major U.S. stock indexes posted weekly losses. The Dow Jones Industrial Average fell 0.77%, the S&P 500 lost 1.01%, and the Nasdaq Composite dropped 1.40%. Among the Magnificent Seven AI-related megacaps, Meta and Alphabet suffered the worst declines, down 2.7% and 3.2%, respectively.
Investors have begun positioning for a potential slowdown in the nearly trillion-dollar AI spending boom, with some active managers scaling back exposure. Analysts cited profit-taking, rising scrutiny of AI capital expenditure sustainability, and concerns about competition from Chinese AI startups as key factors driving the selloff.
Taiwan Semiconductor Manufacturing Co. (TSMC) reported stronger-than-expected earnings but announced higher capital expenditures than previously forecast, contributing to the sector's decline. Meanwhile, Chinese AI startup Moonshot unveiled Kimi K3, a 2.8 trillion-parameter model, raising questions about the pace of returns from U.S. tech companies' AI investments.
The selloff occurred despite cooling inflation data, which eased fears of an interest rate hike by the Federal Reserve. Energy stocks were the sole gainers in the S&P 500, benefiting from spiking crude oil prices amid geopolitical tensions.