To The Moon

Nasdaq Sinks, Chip Stocks Plunge: What's Driving the Selloff?

Tech stocks suffered a sharp selloff on October 22, with the $NASDAQ(.IXIC)$   sliding more than 2% and the $PHLX Semiconductor Index (.SOX.US)$ plunging over 5%. $Meta Platforms, Inc.(META)$  , $Space Exploration Technologies Corp(SPCX)$  , and $Alphabet(GOOG)$   came under selling pressure. Semiconductors bore the brunt of the decline, with $Lam Research (LRCX.US)$ tumbling around 10%, while $Advanced Micro Devices (AMD.US)$, $Intel (INTC.US)$, $NVIDIA (NVDA.US)$, $Broadcom (AVGO.US)$, and $Taiwan Semiconductor (TSM.US)$ also fell sharply. AI infrastructure stocks, including $CoreWeave (CRWV.US)$, $NEBIUS (NBIS.US)$, and $Super Micro Computer (SMCI.US)$, remained under pressure as concerns over AI spending and rising macroeconomic risks weighed on sentiment.

Why did AI stocks reverse course so quickly after yesterday's rebound? Could a deeper correction be ahead?

Middle East Tensions Fuel Global Tech Selloff

Escalating Middle East tensions sent oil prices surging, fueling inflation fears and raising concerns that the Federal Reserve could have less room to cut interest rates.

Risk aversion spread from Asian markets to Wall Street, putting pressure on richly valued tech stocks. Meanwhile, concerns over returns on massive AI investments continued to weigh on sentiment as investors questioned when rising capital spending would translate into profits and free cash flow.

Semiconductors Lead Losses Despite Strong AI Demand

Lam Research became a key catalyst for the semiconductor selloff. The company reported record quarterly revenue of $8.22 billion, up 22% sequentially, but its next-quarter guidance of $8.6 billion failed to exceed elevated expectations, sending shares sharply lower.

Meanwhile, Meta reported 26% revenue growth and better-than-expected adjusted earnings while raising its AI capital expenditure outlook, reinforcing demand for chips and data center infrastructure.

AI demand remains strong, but elevated valuations leave little room for disappointment. Earnings that merely meet expectations are struggling to support share prices, particularly as macroeconomic risks intensify.

What's Next? AI Fundamentals Remain Supportive

Tech stocks may face further near-term volatility, but the AI investment cycle continues to show resilience. Meta's expanding capital spending and Lam Research's record revenue point to sustained infrastructure demand.

Still, semiconductor stocks are becoming increasingly sensitive to earnings guidance, suggesting valuations may need more time to adjust.

The key is whether Big Tech maintains its AI spending plans and semiconductor earnings expectations remain intact. If both hold, the selloff looks more like a valuation reset than a fundamental shift in the AI growth outlook.

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