AI Stocks Tumble, Oil Surges as Iran Conflict Hits Markets

Wall Street suffered a broad sell-off on Friday as a deepening rout in artificial intelligence and semiconductor stocks converged with a sharp surge in oil prices fueled by escalating US-Iran hostilities over the Strait of Hormuz. The S&P 500 fell 1% to 7,457.69, the Dow Jones Industrial Average dropped 406 points (0.8%) to 52,146.42, and the Nasdaq Composite sank 1.4% to 25,520.24, according to AP News. For the week, the S&P 500 lost over 1.5%, the Nasdaq declined 2.9%, and the Dow fell nearly 1%.

AI and Semiconductor Rout Intensifies

The sell-off was led by technology stocks that had powered the market’s rally for over two years. Nvidia dropped 2.2%, briefly ceding its position as the world’s most valuable company to Apple, while Applied Materials sank 5.6% and Micron Technology swung between sharp losses and gains before finishing 0.5% lower. The PHLX Semiconductor Index (SOX) entered bear market territory, declining approximately 13% over the past 30 days, as Yahoo Finance reported.

The damage has been enormous: global chip stocks have erased roughly $3.3 trillion in market value since June 22. Asian markets were hit particularly hard, with Taipei falling 6.5%, Tokyo dropping 4%, and Shanghai declining 3%. Taiwan Semiconductor Manufacturing Co. (TSMC) tumbled 7.3%.

Adding to the pressure, Chinese AI startup Moonshot unveiled Kimi K3, a powerful open AI model that analysts say rivals Western frontier models. The development echoes the DeepSeek shock of early 2025 and has reignited concerns that low-cost Chinese competitors could undercut demand for expensive Western AI chips and infrastructure.

Other notable decliners included Netflix, which sank 7.3% after its third-quarter revenue forecast fell short of expectations, and Intuitive Surgical, which dropped 14.1% despite beating earnings estimates. SpaceX fell 5.4%, touching its lowest level since its Nasdaq debut, after aborting a Starship test flight.

Oil Prices Surge as US-Iran Conflict Escalates

Brent crude oil surged 4.6% to settle at $88.10 per barrel, up from roughly $76 a week ago, as the United States expanded its airstrike campaign against Iran for a sixth consecutive night. West Texas Intermediate (WTI) crude crossed back above $80 per barrel, gaining 3.4%, according to CNBC.

The US-Iran conflict, now in its 141st day since late February, has entered a critical new phase. US Central Command confirmed strikes on bridges, a tower at a key Iranian port, and targets in Bushehr province, home to Iran’s only nuclear power plant. Iran retaliated by striking US military bases in Jordan, Kuwait, and Bahrain, with Kuwait reporting damage to a power generation plant and a water desalination facility, as AP News reported.

The Strait of Hormuz, through which approximately 20% of the world’s oil passes, has faced severe disruption. Shipping traffic through the strait has fallen to a trickle, with just eight vessels transiting on Thursday — a three-week low against a pre-war baseline of more than 100 vessels daily, according to GlobalSecurity.org.

Interconnected Risks and Economic Implications

The dual shocks are not occurring in isolation. Higher oil prices feed into inflation expectations, which could force the Federal Reserve to raise interest rates — a development that would further pressure high-valuation tech and AI stocks. Treasury yields have already moved upward, with the 30-year mortgage rate hitting its highest level in nearly a year.

Despite the severity of the sell-off, some analysts see reasons for optimism. Bank of America analyst Vivek Arya maintained a bullish outlook on semiconductors, stating that AI hyperscale capital expenditure appears “increasingly sustainable into 2027 and beyond.” The “buy the dip” mentality was evident on Friday as semiconductor stocks trimmed their worst losses. Apple’s relative strength — up 11% over the past month — suggests investors are rotating within the tech sector rather than abandoning it entirely, as Anadolu Agency noted when Apple briefly overtook Nvidia as the world’s most valuable company.

What to Watch

Investors are now watching for several key developments: whether the US-Iran conflict escalates further or moves toward de-escalation, which will determine the trajectory of oil prices and inflation; whether the AI stock correction represents a healthy pullback or the beginning of a prolonged bear market for the sector; and how the Federal Reserve will respond to rising oil prices and inflation expectations. The coming week’s earnings reports and economic data will provide further clues about the resilience of the broader market.