(Bloomberg) -- Just two weeks ago, high-flying mega-tech stocks and their chipmaking cousins were powering the Nasdaq 100 Index to yet another record.
It was the 53rd all-time high for the tech-heavy benchmark since March 2023, when ChatGPT launched dreams of an artificial intelligence world. The ensuing rally added $13 trillion to the tech-heavy benchmark’s valuation. And investor appetite seemed bottomless: Same-day bullish options exploded in popularity, and triple leveraged ETFs flooded the market.
But now the feast appears to be over, at least for time being. The Nasdaq 100 tumbled 2.8% Thursday, putting it down 9.6% since hitting that record on Feb. 19, just shy of the 10% threshold for a correction. It’s a drawdown so swift you have to go back to the pandemic collapse to match it. Chip stocks are leading the selloff, with the Philadelphia Semiconductor Index, which plunged 4.5%, already in a bear market, down almost 24% from its July 10 record.
Meanwhile, traders are betting on more declines, with the cost for protection against another 10% slide in the chip index the highest in two years. And bears are loading up on tech shares, pushing short interest in the VanEck Semiconductor ETF (ticker SMH) to the highest this year.
“There’s been a real unwinding of the momentum trade,” said Joe Saluzzi, co-manager of trading at Themis Trading. “The high-flyers are getting hit first and foremost. It certainly doesn’t feel good, but this is a headline-driven market, and things could change at any moment, the way they did a couple days ago. But there’s so much uncertainty it makes sense there’s a real reluctance to buy these big tech names.”
After years of unabated enthusiasm driving investors to determine what they needed to buy for their portfolios, the thinking has flipped. The rampant fear of President Donald Trump’s trade wars, sticky inflation and mass firings triggering a recession, or worse stagflation, have traders looking at what they should sell, not buy. And the targets are the biggest winners over the past few years, tech stocks, specifically chips.
Repricing Growth
“Investors are repricing the growth prospects of these stocks in a market that will be driven by tariff and inflation headlines, not future growth potential from AI,” said Dave Mazza, chief executive officer of Roundhill Investments. “In other words, the days of good vibes have come to a screeching halt.”
Shares of semiconductor companies are particularly under pressure as China’s AI capabilities underscore questions over the group’s demand prospects. Nvidia Corp. was the biggest drag on the S&P 500 Index Thursday, sinking 5.7%, which put it down almost 20% in just two weeks. Broadcom Inc., which reports its results after the market close, was the fourth-biggest drag on the S&P, tumbling 6.3%.
“This shows the AI trade can be upended by Beijing, which puts the fundamental picture into question,” said Jason Britton, chief investment officer of Reflection Asset Management.
But it isn’t just chip stocks doing damage. The Bloomberg Magnificent Seven Index — comprised of Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp, Nvidia and Tesla Inc. — is already in a correction, down 16% from its Dec. 17 high.
The selloff has been even more extreme in the speculative corners of the market. A basket of profitless technology companies tumbled 4.2% on Thursday and has shed 11% this year.
While the rout doesn’t mean further pain is necessarily imminent, the souring mood in America’s equity market signals a stark turnaround from Trump’s election in November. In the month after Election Day, the S&P 500 jumped more than 5% on the expectation that the new administration would bolster the economy. Now its entire election gain is gone.
“Hold on tight, because there’s going to be a lot of volatility,” said Eric Diton, president and managing director of the Wealth Alliance. “Traders are nervous and worried about how tariffs will impact US multinational companies, so tech is the first target. That’s going to batter major indexes given their big weightings.”
--With assistance from Alexandra Semenova.
(Updates with closing prices throughout.)
