Qualcomm drops 13% as chip stocks pull back from record AI-driven rally

In a surprising turn of events, chip stock prices took a downturn on Tuesday, retracting from a remarkable surge that had previously expanded the artificial intelligence (AI) market beyond the dominant player, Nvidia. Qualcomm experienced a sharp decline, falling by 13% and heading towards its most challenging trading day since 2020. Other major players also faced setbacks, with Intel's shares dropping by 8%, while On Semiconductor and Skyworks Solutions saw declines exceeding 6% each. The iShares Semiconductor ETF, which tracks the performance of the sector, fell by 5%. This wave of declines coincided with a stronger-than-anticipated report on consumer inflation and rising oil prices due to the ongoing conflict in Iran, prompting a more cautious stance from investors. The recent surge in chip stocks had been fueled by escalating demand for central processing units and their graphical counterparts, essential for powering advanced AI applications, particularly large language models. Investors had been optimistic that the shift from AI training to deployment would further increase the need for various AI components, including memory chips. However, amid a persistent supply shortage, memory chip manufacturers like Micron Technology and Sandisk also reported declines, with shares dropping 6% and 8%, respectively. Notably, Sandisk’s stock had surged over sixfold since the beginning of the year, highlighting the volatility within this dynamic sector.