Tech Selloff Intensifies as Markets Question AI Valuation; Chip Stocks Plummet Amid Profit-Taking
US stock markets shifted sharply from tech to traditional sectors on July 2–3 as investors took profits on semiconductors and questioned whether AI enthusiasm had inflated valuations too far. OpenAI was reported in talks to sell a 5% stake to the US government while Meta announced plans to monetize excess computing capacity, triggering broad declines across chipmakers and AI-related stocks.
Market Rotation Away from AI Boom
US stocks closed mixed on Thursday as tech volatility gripped trading ahead of the Independence Day holiday, with the S&P 500 flat and the Nasdaq 100 falling 0.8%. The shift reflected growing concerns that artificial intelligence enthusiasm had pushed valuations to unsustainable levels. Stocks in the AI trade tanked as markets continued to gauge for signs that the sector is overbought, with catalysts including reports that OpenAI started discussions about selling a 5% stake to the US government, while Meta announced it may start selling excess compute capacity, a sign that its capital expenditures were overdone.
Semiconductor Sector Leads Decline
Micron lost 7%, Marvell and Applied Materials dropped 10%, and Sandisk sank 13%. Semiconductors fell for a second day in a row, weighing on market benchmarks, with the VanEck Semiconductor ETF dropping 4.5%, led by a 13.6% decline in Teradyne and an 11.5% slide for KLA, while Nvidia shares pulled back 1.4% and Micron shares lost 5.5%. The tech-heavy Nasdaq Composite fell as investors dumped semiconductor names, taking profit after the swath of stocks surged more than 80% in the first half of 2026, with Micron tumbling more than 10% although it remained up more than 260% for the year to date.
Traditional Sectors Gain Ground
The Dow rose 300 points to another record high amid strength on traditional sectors, with Apple gaining 5% while Visa and Walmart rose over 2%. For the week, the S&P gained 1.8%, the Nasdaq added 2.1% and the Dow rose 2%.
Broader Context on Valuations
The profit-taking marks a significant reversal from the AI-driven rally that dominated markets in the first half of 2026. Analyst commentary suggests the reversion trade may have been lined up anyway but was helped by news flow, with Meta and Softbank potentially selling excess compute capacity, as Neoclouds and newer HPC entrants sold off sharply along with AI hardware and chip names. The rotation underscores investor concerns about whether promised AI productivity gains can justify current valuations.