What are investors worried about? The U.S. stock chip sector collectively pulls back as the market awaits Nvidia's earnings report to set the direction

What are investors worried about? The U.S. stock chip sector collectively pulls back as the market awaits Nvidia's earnings report to set the direction

On Tuesday, U.S. chip stocks collectively retreated from their record-breaking AI-driven rally. Recently, the rally themed around AI has shown a broad flowering trend, no longer limited to Nvidia alone, and has driven the entire chip sector to new highs. That day, Qualcomm plummeted over 11%, marking its worst single-day performance since 2020 and the largest decline among S&P 500 components. Intel's decline was second, falling nearly 7% that day.
Despite the sharp drop on Tuesday, Intel's stock has risen 85% over the past month and nearly 227% so far this year, as the market gradually recognizes the importance of its server central processing units (CPUs) in the AI era. In the memory chip sector, Micron Technology fell about 4%, and SanDisk plunged about 6%. However, SanDisk's stock has surged more than sixfold since the beginning of the year. Additionally, Skyworks Solutions dropped over 5%, and Marvell Technology declined about 4%. The iShares Semiconductor ETF tracking the chip sector fell 3%. The Philadelphia Semiconductor Index declined sharply over 3% on Tuesday, but the index's year-to-date gain still exceeds 60%.

What are investors worried about?
The trigger for this correction was: key U.S. inflation data higher than market expectations, combined with rising oil prices due to tensions with Iran, prompting investors to shift into "safe-haven mode." Analysts point out that there is a "buying exhaustion" phenomenon in the market, and investors are also concerned that the latest inflation data could negatively impact commitments to data center spending. Jefferies stock trading analyst Jeffrey Favuzza said Tuesday that one reason for the overall decline in the semiconductor sector is, "after the recent rally, there are signs of some buying exhaustion."
Davidson Managing Director Gil Luria pointed out broader concerns about high inflation. In an email to the media, he said that investors see the latest inflation data as "a signal: if companies cut back on AI investments, the pace of data center construction could slow." He noted this would lead to a decline in chip demand. The next market catalyst: aside from Nvidia's earnings report, investors are diversifying their funds into various hot areas seen as beneficiaries of AI, which previously had not been fully recognized for their importance to AI infrastructure. Investors bet that the transition from AI training to AI agents will boost demand for other AI components, including memory chips, GPUs, and more. Bernstein analyst Stacy Rasgon recently stated, "Funds first flowed into the memory chip sector, then shifted to semiconductor equipment, optical modules, power systems, and CPU sectors. These segments were not previously recognized by the market as being driven by the AI wave."
The next focus for investors will be Nvidia's earnings report, which is considered "the most important report in the universe" and will be a key force shaping the next move of the U.S. stock market, as it will provide crucial evidence on whether global AI infrastructure demand remains strong. Nvidia plans to release its fiscal Q1 2027 earnings for the period ending April 26 after the U.S. stock market closes next Wednesday (May 20). Wall Street widely expects Nvidia to deliver far exceeding expectations in revenue and profit growth. The well-known Wall Street investment bank Wedbush recently said that the Q1 earnings season has already sounded an alarm for skeptics watching the AI revolution from the sidelines, and Nvidia's upcoming report should serve as another catalyst for the rally in tech stocks.