Chip Wreck: Tech Selloff Hits Global Stocks

Global stocks slumped Tuesday in a tech-led selloff that wiped out gains from the previous session. The trigger was a batch of earnings and guidance from semiconductor companies that showed rising capital expenditure on AI infrastructure, funded largely through debt, with no clear timeline for returns.

The Philadelphia Semiconductor Index fell 3.2%, its biggest single-day drop in three months. Nvidia lost 4.1%, AMD dropped 3.8%, and Intel slid 2.9%. The selloff spread to Asia and Europe, where the tech-heavy Nikkei 225 fell 1.8% and the Stoxx 600 Technology Index shed 2.1%.

Investors were already on edge ahead of Wednesday's U.S. CPI report. A hot print would reinforce the case for the Federal Reserve to hold rates higher for longer, traders said. That prospect, combined with the AI spending concerns, pushed the dollar index up 0.3% and sent the yield on the 10-year Treasury note to 4.52%, its highest since November.

The dollar's strength added pressure on emerging-market currencies and commodities priced in the greenback. Gold slipped 0.6% to $2,315 an ounce. Crude oil fell 1.2% as a stronger dollar and demand concerns from China outweighed supply risks.

Bitcoin, which had rallied above $70,000 last week on optimism about a spot ETF approval, fell 3.5% to $66,800. The move tracked the broader risk-off tone, with traders citing the tech selloff and the dollar's rally as the proximate causes.

The selloff in tech stocks was concentrated in names with the highest AI exposure and the most debt on their balance sheets. Nvidia's debt-to-equity ratio has climbed to 0.45 from 0.28 a year ago, according to data compiled by Bloomberg. AMD's ratio rose to 0.32 from 0.19 over the same period. The market is pricing in a higher cost of capital for these names, one New York-based hedge fund manager said.

The broader market took its cue from the tech rout. The S&P 500 fell 1.1%, with all 11 sectors in the red. The Dow Jones Industrial Average lost 0.7%. The Cboe Volatility Index, or VIX, rose to 18.5, its highest in two weeks.

The selloff came as the Treasury Department auctioned $42 billion in 3-year notes, which drew a yield of 4.52%, the highest since March. The auction's bid-to-cover ratio of 2.48 was below the 10-auction average of 2.55, suggesting tepid demand.

The next test for markets is Wednesday's CPI report, due at 8:30 a.m. ET. A print above 3.4% year-over-year would likely push the 10-year yield above 4.6% and extend the dollar's rally, traders said. A softer print would revive bets on a September rate cut and could spark a relief rally in tech stocks.

For now, the market is caught between two narratives: AI spending as a long-term growth story and the near-term reality of rising debt costs and a hawkish Fed. Tuesday's selloff suggests the latter is winning the argument, at least for this session.