Stock Market Downturn: Key Stocks Plummet Amid AI Trade Reversal and Earnings Reports

Several stocks, including Nova, Amkor, Magnachip, Sportsman's Warehouse, and AMC Networks, declined after the major indices pulled back. The market's weakness is attributed to the recent gains in technology and semiconductor companies, which were largely driven by the "AI trade." Despite the downturn, analysts see this as an opportunity to buy high-quality stocks, citing the tech bull cycle remaining intact for the next 2-3 years.

Tech stocks have been under pressure, extending their recent slump amid a sector rotation away from big tech leaders. The Nasdaq lost close to 1% in recent trading, and the S&P 500 slid 0.4% as tech sector losses weighed on the indexes. The Dow Jones Industrial Average was little changed as retail and consumer defensive names gained, while Amazon (AMZN), Apple (AAPL), and Nvidia (NVDA) ranked among its weakest performers as all of the "Magnificent Seven" stocks declined [1].

Several factors have contributed to the recent downturn, including caution ahead of a speech from Federal Reserve Chair Jerome Powell on Friday, uncertainty about policy changes from the Trump administration, and worries about returns from AI spending. However, some Wall Street analysts remain optimistic about the sector's long-term prospects.

UBS, for instance, advised investors against becoming overly defensive, stating that while some caution may be warranted in the more cyclical parts of tech, the broader AI sector's long-term growth and resilience should be considered. The firm recommends seeking balanced exposure across the AI value chain, with a preference for laggards offering a more attractive risk-reward balance [1].

Bullish analysts at Wedbush also see the recent slump as an opportunity, suggesting that the tech bull cycle will remain intact for another 2-3 years, given the trillions being spent on AI. They pointed to earnings from AI chipmaker Nvidia next week as a potential positive catalyst [1].

Additionally, the VanEck Semiconductor ETF (SMH) has seen a $317 million inflow, representing a 1.1% increase in outstanding units. Among the largest underlying components, Taiwan Semiconductor Manufacturing Co. (TSM) is down approximately 0.6%, while Advanced Micro Devices Inc. (AMD) has fallen by about 1.7%. ASML Holding NV (ASML) is also lower by about 1.2%. These fluctuations are likely influenced by the recent announcement of a proposed 100% tariff on semiconductor imports by President Trump, which exempts companies committed to U.S. manufacturing [2].

Despite the market's weakness, analysts see this as an opportunity to buy high-quality stocks, citing the tech bull cycle remaining intact for the next 2-3 years. The market's weakness is attributed to the recent gains in technology and semiconductor companies, which were largely driven by the "AI trade."

References:
[1] https://www.investopedia.com/tech-stocks-are-under-pressure-why-some-wall-street-analysts-say-that-may-not-last-11794418
[2] https://www.ainvest.com/news/semiconductor-etfs-significant-inflow-tsm-amd-asml-stocks-decline-2508/