AI Stocks Resume Decline, Dragging Global Markets Lower
Artificial intelligence stocks resumed their downward trajectory on Tuesday, pulling global markets lower as a wave of profit-taking swept through the technology sector. The selloff was triggered by Samsung Electronics’ better-than-expected preliminary second-quarter earnings, which paradoxically raised concerns that AI stock valuations had become overheated.
The S&P 500 fell 0.3% despite the majority of stocks within the index rising, while the tech-heavy Nasdaq Composite dropped 0.6%. The Dow Jones Industrial Average lost 153 points, or 0.3%, according to AP News. The weakness originated in Asia and spread to European and U.S. markets in a synchronized global selloff.
A Paradox of Record Earnings
Samsung Electronics reported an estimated second-quarter operating profit of 89.4 trillion won (US$58.8 billion), marking a staggering 1,181% year-over-year increase and a third consecutive quarterly record. Revenue reached 171 trillion won, up 129.3% from a year earlier. The results exceeded market forecasts by 6.2%, according to Yonhap News Agency.
Yet the company’s stock plunged 6.92% in Seoul trading, closing at 296,000 won. The apparent contradiction reflects a classic “sell the news” phenomenon: Samsung’s stock had more than doubled year-to-date before the earnings release, meaning the record results were already priced in, leaving no room for disappointment.
Global Contagion
The selloff demonstrated the deep interconnectedness of AI and semiconductor markets worldwide. Weakness began in Seoul, where the KOSPI tumbled 4.91% — a drop of 395.02 points to close at 7,656.31 — triggering a circuit breaker that suspended trading for 20 minutes, as Yonhap reported.
From there, the contagion spread across Asia and into Europe. Japan’s Nikkei 225 fell 2.1%, while Germany’s DAX lost 1.4%. In the United States, major technology stocks bore the brunt of the selling pressure. Micron Technology fell 5%, becoming the heaviest weight on the S&P 500. Intel sank 9.1%, and SpaceX’s xAI business dropped 5.2% in its first trading after being included in the Nasdaq 100 index.
Nvidia, the largest U.S. stock by market value and the bellwether of the AI boom, managed to rise 1.1% after slipping earlier in the session, providing some relief to the broader market.
Valuation Concerns Resurface
The selloff comes amid persistent worries that AI stock prices have risen too far, too fast relative to the actual revenue and productivity gains the technology is generating. As AP News noted, AI stocks have been under similar pressure in recent weeks on concerns that the massive investments in chips and data centers may not produce sufficient returns.
Yonhap News Agency reported that investors are now focusing on “whether rising capital spending, intensifying competition and expanding production capacity will generate the earnings growth needed to justify elevated valuations of technology companies.”
Geopolitical Headwinds
The tech selloff unfolded against a backdrop of rising geopolitical tensions. Brent crude oil rose 2.9% to $74.11 per barrel after the British military reported that three tankers were struck by projectiles in the Strait of Hormuz. Higher oil prices fuel inflation concerns, which could force the Federal Reserve to maintain or raise interest rates — a challenging environment for growth stocks.
The 10-year Treasury yield climbed to 4.52% from 4.48%, reflecting the inflationary pressure. High yields worldwide have been rattling investors after oil prices burst above $100 per barrel earlier in the summer due to the ongoing conflict in Iran.
Broader Market Resilience
Despite the sharp declines in AI and semiconductor stocks, the broader market showed notable resilience. The S&P 500 fell only 0.3%, and the majority of stocks within the index actually rose, suggesting the selloff was concentrated in the technology sector rather than reflecting broad-based market weakness.
Outside of tech, Rivian Automotive dropped 15.1% after announcing a 75 million share stock offering, while Vertex Pharmaceuticals fell 1% after agreeing to acquire Crinetics Pharmaceuticals, which soared 98.8% on the news.
What to Watch
Investors will be watching closely to see whether the AI stock correction deepens or represents a temporary pullback in what has been a secular bull market for the sector. Key questions include how SK hynix’s planned $29 billion U.S. listing will fare amid the current volatility, and whether the Federal Reserve’s monetary policy stance will shift in response to oil price-driven inflation.
Samsung Electronics is expected to release its final second-quarter earnings report later this month, which will provide a detailed breakdown of performance by business division and offer further insight into the health of the AI-driven semiconductor supercycle.