The stocks that fueled Wall Street’s powerful AI rally are suddenly under pressure as investors evaluate rising tensions in the Middle East, take profits after a historic run, and reassess where to find value.

Chipmakers’ Struggles

After months of hitting record highs, semiconductor chip stocks have dropped in recent weeks, weighing on the broader US stock market. The S&P 500 and Nasdaq Composite are down almost 2% and 5%, respectively, since their record highs on June 2.

The AI boom catapulted chipmakers into the spotlight: The semiconductor and semi equipment industry added nearly half of the S&P 500’s market value gains this year, according to Mike O’Rourke, chief market strategist at JonesTrading.

However, the speed and size of the rally have fueled debate about its sustainability. “The semiconductor rally was way over its skis,” said Jeff Buchbinder, chief equity strategist at LPL Financial. “Investors were as loaded up with tech stocks, particularly semis, as they ever get.”

Impact on the Market

Gains in shares of chipmakers helped global markets bounce back from a slump at the start of the US-Israeli war with Iran this year. But after posting their best quarter on record, chipmakers are wavering.

Chipmakers have stumbled as some investors are taking profits after strong rallies. Other investors are assessing Big Tech’s plans for spending on AI infrastructure and how that could impact chipmakers’ revenues.

Micron Technology, a chipmaker, has dropped more than 20% since hitting a record high on June 25. The PHLX semiconductor index is down 15% since hitting a record high in late June.

Despite the recent volatility, chipmakers remain well ahead for the year. Micron is still up more than 200% this year, and the PHLX semiconductor index is still up 75% this year.

Original reporting: KTVZ (Central Oregon) — read the source article.