S&P 500 Slides as AI Chip Stocks Tumble, Cooling Tech Rally

U.S. stocks closed sharply lower on Friday as a selloff in technology shares, led by semiconductor companies, weighed heavily on broader markets and dampened enthusiasm around the artificial intelligence trade. The downturn reflected growing investor concerns that lofty AI-driven valuations may be running ahead of near-term fundamentals.

By the closing bell at 4:00 p.m. ET, the Dow Jones Industrial Average dropped 245 points, or 0.5%. The S&P 500 fell 1.1%, while the NASDAQ Composite slid 1.7%, marking a broad-based decline across major indices as tech stocks dragged the market into a sea of red.

Broadcom shares sank after the chipmaker warned that its high-margin, non-AI business is expected to post muted performance in the current quarter. While Broadcom reported better-than-expected fiscal fourth-quarter earnings and issued an above-consensus revenue forecast, investors focused on margin pressures and long-term uncertainties. The company also disclosed that a major data center agreement with OpenAI is unlikely to generate returns before 2027, raising questions about the timing of AI-related profitability. Despite highlighting an AI order backlog of $73 billion over the next 18 months, sentiment turned cautious as management acknowledged that at least two major customers are considering developing their own AI data center chips.

The weakness in Broadcom spilled over to other semiconductor stocks, including Nvidia, Advanced Micro Devices, Micron Technology, Lam Research, and Marvell Technology, amplifying losses across the tech sector. The pullback followed a downbeat outlook from Oracle a day earlier, which added to fears that AI-linked stocks may be overextended after a strong rally.

Outside of tech, Costco delivered a brighter note after beating Wall Street estimates for first-quarter revenue, supported by resilient consumer demand despite economic uncertainty. Lululemon Athletica shares surged after the company announced a CEO transition and raised its full-year profit forecast.

Looking ahead, investors continue to weigh valuation concerns against expectations for monetary easing. Markets are pricing in at least 50 basis points of interest rate cuts next year, driven by expectations of a more dovish Federal Reserve leadership. While firms like BCA Research and Goldman Sachs remain constructive on U.S. equities into 2026, they caution that returns may be more modest as earnings growth and profitability among mega-cap stocks become increasingly critical drivers of market performance.