Chip Selloff Drags U.S. Stocks Lower on AI Spending Returns Doubts

U.S. equities declined on Thursday, led by a 4.3% drop in semiconductor stocks amid growing doubts that massive AI capital expenditures can justify current valuations. The Nasdaq 100 lost 1.6%, while Alphabet dropped 4.4% following reports that its flagship AI model is months behind schedule.

TSMC's strong earnings and higher capex guidance failed to lift sentiment. Geopolitical risks remained elevated as the U.S. intensified strikes against Iran, keeping inflation and energy supply concerns in focus.

Two Federal Reserve officials, Jeff Schmid and Lorie Logan, maintained a hawkish tone, warning that persistent inflation could require higher interest rates. Meanwhile, resilient economic data—falling jobless claims and a modest rise in retail sales—supported the view of a stable consumer.

Corporate highlights included UnitedHealth raising guidance, Merck winning FDA approval for a cholesterol pill, Eli Lilly acquiring Ataibeckley, and Uber buying Delivery Hero. Investors now turn to earnings season to assess whether strong AI spending and consumer resilience can support current valuations.