AI Trade Hit by Selloff: Philadelphia Semiconductor Index Falls Over 6% Intraday, Meta Down More Than 7%

On Thursday, October 22, market sentiment shifted rapidly from the optimism driven by the previous day's strong earnings reports to scrutiny of whether massive AI capital expenditures can deliver returns. Combined with the Middle East situation pushing oil prices higher and rising risk aversion, tech stocks came under multiple pressures. The US stock market's AI trade suffered repeated blows, with chip stocks, optical communications, AI cloud computing, and the server supply chain all falling collectively. Meta also faced selling pressure due to cost and financing concerns triggered by increased AI investment.

Chip stocks bore the brunt of the selloff. The Philadelphia Semiconductor Index (SOX), which had rebounded about 2% on Wednesday, and the semiconductor industry ETF SOXX both fell more than 6% collectively in early trading on Thursday. Among individual stocks, Nvidia (NVDA) fell more than 4% at one point, AMD (AMD) dropped about 8%, Lam Research (LRCX) fell more than 10%, and KLA (KLAC) dropped more than 9%; memory chips, optical communications, and AI cloud computing sectors all suffered sharp declines.

Meta (META) fell more than 7% at one point during intraday trading. The company's credit risk indicator, the five-year credit default swap (CDS) price, rose to a historic high, highlighting investors' concerns about the scale of AI investment, future financing needs, and the return cycle.

The core of this selloff is that the market has begun to reassess the costs, financing pressures, and return cycles of the AI investment boom. Meta's third-quarter revenue and profit both exceeded expectations, but it further raised its full-year capital expenditure guidance and disclosed that future spending commitments had risen to $825 billion; Lam Research, meanwhile, triggered market concerns about the pace at which semiconductor equipment companies can deliver growth due to supply constraints.

At the same time, an attack on Saudi Arabia pushed Brent crude above $110 per barrel, bringing energy costs and inflation risks back into focus. The uncertainty of AI investment returns, supply chain constraints, and geopolitical risks intertwined, prompting investors to reduce exposure to highly valued tech assets and shift toward relatively safe bonds.

Chip leaders fell broadly, equipment stocks led the supply chain decline

The semiconductor sector fell sharply on Thursday, with chip design, manufacturing, equipment, and memory stocks coming under pressure almost across the board. Broadcom (AVGO) fell 4.5% at one point, Marvell Technology (MRVL) dropped nearly 9%, Intel (INTC) fell nearly 7%, and TSMC's US-listed shares (TSM) dropped nearly 4.5%.

Semiconductor equipment stocks posted even more pronounced declines. In addition to Lam Research and KLA, which fell at least more than 9% during intraday trading, Applied Materials (AMAT) dropped about 7.5% at one point. Among memory chip stocks, SK Hynix's US-listed shares (SKHY) fell more than 6% at one point, SanDisk (SNDK) dropped nearly 7%, Micron Technology (MU) fell 4.6%, Western Digital (WDC) dropped more than 7%, and Seagate Technology (STX) fell nearly 9%.

Stocks related to optical communications and AI infrastructure were also sold off. Credo (CRDO) fell nearly 10% at one point in early trading, Coherent (COHR) dropped more than 10%, Lumentum (LITE) fell 10%, and Corning (GLW) dropped more than 8%. AI cloud computing service provider CoreWeave (CRWV) fell nearly 9% at one point, Nebius (NBIS) dropped more than 6% at one point; during intraday trading, Dell (DELL) fell nearly 8%, Super Micro Computer (SMCI) dropped nearly 7%, and Oracle (ORCL) fell more than 3%.

The broad decline across the supply chain shows that market concerns have expanded from the valuations of individual chip companies to the entire AI infrastructure investment chain. The growth expectations of chip designers, equipment suppliers, memory manufacturers, optical communications companies, and cloud service providers are all closely tied to the ability of large tech companies to continue investing in AI infrastructure. Once investors begin to question the speed of returns on spending, related assets may come under pressure simultaneously.

Meta raises capital expenditure, $825 billion future spending commitment sparks financing concerns

Meta became another focal point of the AI trade pressure on Thursday. The company's third-quarter revenue grew 26% year-over-year to $64.6 billion, exceeding market expectations; earnings per share were $3.83, also above analysts' expectations of $3.57. But the strong current-quarter results failed to dispel market concerns about future investment costs, and Meta's stock fell more than 7% at one point in early trading.

Meta raised its 2026 capital expenditure guidance to $135 billion to $145 billion, increasing the lower bound of its previous guidance range from $130 billion. The company disclosed that future spending commitments, including leases, computing power transactions, and energy agreements, had risen to $825 billion.

The market's focus is shifting from whether the AI business can grow to how much capital growth requires and when it can generate sufficient returns. Meta CEO Zuckerberg said the company's investments are paying off, the core business remains strong, and products such as the AI assistant Muse also show growth potential. But the company also acknowledged that the return cycle for some new AI investments will be longer than that of the core business.

Meta's credit risk indicators also deteriorated. Bloomberg data showed that Meta's five-year CDS price rose about 8.9 basis points at one point during intraday trading to around 119.3 basis points, a record high. A rise in CDS prices means higher hedging costs for investors against the risk of default on the related debt, reflecting the market's increased caution about the company's expanding AI investment and potential financing needs.

Meta also announced the distribution of a new class of non-voting shares to existing shareholders, which could be used in the future for financing, employee compensation, and potential acquisitions. The arrangement further raised market attention to how the company will fund its AI expansion.

Next, Google parent Alphabet, Microsoft and Amazon will successively report quarterly results. These big tech companies' earnings will not only test whether AI demand is sustained, but also reveal whether capital expenditure continues to accelerate and whether companies can gradually prove that their investment is translating into revenue, profit and cash flow. For the market, the key to the AI trade is no longer just how fast demand is growing, but also whether the scale of spending is sustainable.

Lam Research supply constraints prompt reassessment of equipment stocks' growth expectations

Lam Research became one of the biggest decliners in the semiconductor equipment sector. After the company reported quarterly results, its shares fell more than 10% at one point in early trading. The company's outlook for the next stage of performance and supply constraint issues made investors more cautious about industry growth expectations.

According to reports, after the earnings release, Lam Research management said that without recent supply constraints, the company's guidance could have been higher. Supply constraints mean that even with strong demand for AI-related chips, equipment companies may not be able to deliver products and recognize revenue at the expected pace. This has led the market to reassess whether strong orders can be converted into actual performance in a timely manner.

Valuations of semiconductor equipment companies depend heavily on fab expansion and investment in advanced processes. Previously, AI data center construction drove chip demand growth, prompting fabs to increase capacity and supporting equipment companies' orders and share prices. However, limited equipment deliveries or adjustments to customers' expansion plans could affect the pace of revenue realization in the coming quarters.

Peer stocks such as Applied Materials and KLA also fell sharply, indicating that investors did not limit the problem to Lam Research alone. The equipment sector had previously benefited from AI capital expenditure expectations, and share prices were highly sensitive to future growth; when the market began to worry about supply bottlenecks, the pace of capital expenditure and valuation levels, related stocks were also prone to amplified pullbacks.

However, supply constraints do not mean AI chip demand has weakened. What is more noteworthy now is whether equipment makers can ease delivery bottlenecks and whether big tech companies' data center investment can continue to support fab expansion. Subsequent earnings reports and management guidance will help the market judge whether this round of adjustment is a correction in valuations and positioning, or whether growth expectations for the AI supply chain are beginning to change.

Brent crude tops $110, intensifying inflation and safe-haven pressures

As the tech stock selloff occurred, international oil prices also rose due to escalating tensions in the Middle East. Media noted that Brent crude rose above $111 per barrel, and a deadly attack in Saudi Arabia intensified market concerns that the Middle East conflict could expand and energy supplies could be disrupted.

Rising oil prices not only increase cost pressures on the global economy, but may also push up inflation expectations, raising market concerns that the Federal Reserve and other central banks will have limited room to cut interest rates. At the same time, AI infrastructure construction itself requires large amounts of capital, electricity and equipment, and rising energy prices and financing cost pressures may further affect calculations of investment returns.

In this environment, funds tend to shift from highly valued tech assets sensitive to growth expectations to relatively safe government bonds. Media noted that global stock markets came under broad pressure on Thursday as investors readjusted positions amid AI growth prospects and escalating Middle East risks; U.S. Treasuries were supported by safe-haven buying, and yields fell.

The broad decline in chip stocks on Thursday shows that the AI trade has entered a stage that places more emphasis on earnings realization, capital efficiency and financing sustainability. Strong demand remains an important support for the industry, but demand growth alone is no longer enough for all companies in the supply chain to continue commanding valuation premiums. In the coming weeks, earnings reports from big tech companies, capital expenditure plans and chip equipment companies' outlooks on supply chains and orders will be key to judging whether the AI trade can stabilize. Risk disclosure and disclaimer

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