Nasdaq Slumps 0.8% as AI Trade Jitters Hit Chip Stocks Ahead of Earnings

The latest jitters in the AI trade underscore a critical turning point for the sector. While the Dow hits records, AI darlings are faltering as investors demand proof that billions in infrastructure spending will translate into earnings. The upcoming earnings season could define the AI narrative for the rest of 2026.

Global markets entered the new week caught between two powerful crosscurrents: the enduring appeal of artificial-intelligence-driven growth stories and a creeping doubt about whether the enormous investments in AI infrastructure can deliver commensurate profits. Australian equities bore the brunt of the uncertainty on Monday, with the S&P/ASX 200 sliding 23 points, or 0.26 percent, within the first 15 minutes of trading. Consumer stalwarts Coles and Woolworths joined the big four banks in leading the decline, while oil prices steadied after recent volatility.

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Consumer stalwarts Coles and Woolworths joined the big four banks in leading the decline, while oil prices steadied after recent volatility.

The Australian move mirrors a broader global pattern that crystallized on Thursday, 2 July — the final US trading session of a holiday-shortened week. The Dow Jones Industrial Average surged 594 points, or 1.1 percent, to another record, underscoring a rotation into value and cyclically-sensitive names. Yet the tech-heavy Nasdaq composite lurched in the opposite direction, dropping 0.8 percent after erasing early gains. The S&P 500 finished barely changed, though a remarkable seven out of every ten stocks within the index posted gains — a stark reminder that AI jitters have become a concentrated drag rather than a market-wide crisis.

Europe’s Stoxx 600 provided a sharp contrast, rising to an all-time high in its fourth consecutive weekly gain, powered by utilities and technology. This divergence highlights a market that is trying to reconcile two competing narratives: one that treats AI as a transformative, multi-year growth engine, and another that fears the trade has overshot, making valuations vulnerable to any disappointment in the upcoming earnings season.

The upcoming Q2 reporting period looms as a critical litmus test. Following a two-day rout in chipmakers that rattled confidence, investors are now laser-focused on whether the billions of dollars pouring into AI data centers, semiconductors, and software will translate into tangible revenue and profit upgrades. Tim Moe, equity strategist at Goldman Sachs, struck an optimistic note, arguing that “the fundamentals are still very, very strong and the market is still underpricing them.” His view suggests that the recent selloff in AI names might be a temporary reckoning rather than the start of a sustained downturn, but it will take hard numbers to vindicate that stance.

Meanwhile, traditional safe-haven assets exhibited their own dynamics. Gold extended gains, reflecting underlying caution about tech froth and perhaps geopolitical undercurrents. The US dollar plumbed a two-week low, providing some relief for commodities and emerging markets. The Australian dollar strengthened to around 69.34 US cents, aiding import-dependent sectors but potentially squeezing exporters. Oil’s steadying after recent drops removed one source of worry, though energy stocks remained subdued.