TL;DR
Semiconductor stocks lost 12% in two sessions as the Dow hit a record as investors turned from artificial intelligence chipmakers to enterprise software companies. Weak jobs signal the possibility of subdued interest rate hikes.
The trade set for the first half of 2026 fell apart in the holiday-shortened week before Independence Day, buying anything close to GPU. The The PHLX Semiconductor Index rose more than 80% in the first halfIt was down 6.3% on Wednesday and 5.4% on Thursday, down nearly 12% in two sessions.
As chip stocks cratered, the Dow Jones Industrial Average closed at a record high of 52,900 on Thursday, and Apple rose 5% after Bloomberg reported the company had ordered its suppliers to make 10 million foldable iPhones for launch this fall. All three major indexes ended the week higher despite the rotation.
Numbers behind the cracks
Micron Technology led the decline, falling more than 10% on Wednesday alone. SanDisk, Applied Materials and Lam Research were down about 10%, while Intel and Marvell were down about 9% each.
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The sell-off strengthened after reports that SK Hynix is ​​slowing its expansion of high-bandwidth memory production, a sign that the supply side of the AI ​​infrastructure boom may be catching up with demand. Hardware makers ASML, KLA and Applied Materials all fell between 5% and 6%, suggesting investors were pricing in a slowdown in chip factory orders.
The damage to chip stocks came amid broader macro uncertainty. Nonfarm payrolls totaled 57,000 in JuneAbout half of the consensus estimate of 110,000 and revisions to April and May cut a combined 74,000 jobs from earlier estimates.
The unemployment rate fell to 4.2%, but only because the labor force participation rate fell to 61.5%, the lowest level since March 2021.
Where did the money go?
The pivot was not a flight from AI, but a reassessment of where revenues would come from. Enterprise software resources managed by ServiceNow, Snowflake and PalantirThe iShares Expanded Tech-Software ETF was the main beneficiary, up 35% from its April low.
Snowflake added 616 net new customers and increased its million-dollar account count to 779, up 36% following a strong earnings report at the end of May. In the later session, ServiceNow, Oracle and Palantir each rose 6% to 8%.
The logic is correct. Investors have spent two years paying premiums to companies that provide AI infrastructure, and now they want proof that it’s generating revenue for the companies that deploy it.
Palantir’s Q1 revenue jumps 85% year-over-year to $1.63 billion. ServiceNow predicts $30 billion in subscription revenue by 2030, about a third of which comes from its AI product Now Assist.
Evaluation question
The first half put all three major indexes in strong form. The S&P 500 gained 9.6%, the Nasdaq rose more than 12% and the Dow rose 8.9%, posting its best first-half performance since 2021.
But The Shiller CAPE ratio is between 38 and 4044 After the dot-com peak, market concentration in the second and largest technology stocks surpassed 2000 levels. The difference, supporters say, is that this time the companies are among the most profitable in corporate history, with Nvidia alone reporting net income of more than $120 billion for fiscal 2026.
A counterargument is that profitability at the top of the supply chain does not guarantee profitability in the middle. Hyperscalers are on track to spend more than $650 billion on AI infrastructure in 2026, and the question that frightens the markets in the week when the holiday is shortened Will anyone below Nvidia in the stack make returns that justify these prices?
What the Fed is changing
The weak jobs report reshaped the interest rate picture overnight. The odds of a Fed rate hike at the July 29 meeting have dropped to around 22%, with the top favorite currently standing at 78%.
Fed Chairman Kevin Warsh called the jobs outlook “stable” and continued to emphasize his commitment to the 2% inflation target without giving forward guidance on the rate path. A pending Fed gives equity markets less reason to sell, while also removing the catalyst that supported bank stocks and the dollar earlier in the quarter.
What to watch
The market reopens on Monday as the 2nd quarter approaches. The most important results will come from the AI ​​application level: whether Snowflake’s customer additions accelerate, whether Palantir’s commercial pipeline transforms, and whether ServiceNow’s AI onboarding rate is at the levels predicted.
If the software companies deliver, the spin-off will look prescient. If they disappoint, the AI ​​trade will face a tougher question: what happens when the infrastructure is built and the applications don’t arrive.
