July 28, 2026, (Inside AI) — Nasdaq futures tumbled on Tuesday as a sharp sell-off in AI chip stocks rattled markets, with Micron Technology plunging 4.6% and Applied Materials dropping 3.5% in premarket trading. The declines reflect deepening anxiety over the sustainability of massive corporate AI spending and the rise of cheaper Chinese alternatives, just days before earnings from tech giants are set to reveal whether those investments are paying off.
The Philadelphia SE Semiconductor Index has cratered over 20% from its June peak, while Roundhill's Memory ETF lost 6.6% on Tuesday alone, signaling a stark reversal from the AI-fueled rally that dominated earlier quarters. Nvidia shares fell 1.1%, and U.S.-listed shares of TSMC and SK Hynix slid 2.6% and 4%, respectively, as global investors reassessed the trajectory of chip demand.
The downturn comes amid a volatile month for global markets, driven by a critical question: can the hundreds of billions poured into AI infrastructure generate commensurate returns? Earnings reports this week from Amazon, Meta, Apple, and Microsoft are expected to provide crucial clues on chip demand and the viability of their AI strategies.
China's emergence as a formidable competitor is adding fuel to the fire. The country is not only showcasing cheaper AI models but also deepening its footprint in the semiconductor industry, challenging the dominance of U.S. firms. This dual pressure of spending scrutiny and geopolitical competition has made investors jittery, with signs that even cash-rich companies like Alphabet and Tesla may be stretching their budgets thin.
While the four mega-cap tech stocks were marginally higher in premarket trading, the broader Nasdaq 100 E-minis were down 194.5 points, or 0.69%. Dow E-minis bucked the trend, rising 100 points, as investors rotated into less tech-heavy sectors.
Chip Rout Deepens as Spending Doubts Converge
The sell-off is not just a reaction to quarterly jitters; it reflects a structural recalibration. After a historic run-up, the semiconductor sector is facing a reality check. A key technical indicator, the Memory ETF's persistent trade below its 50-day moving average, underscores weakening momentum. This aligns with broader market fears that AI infrastructure spending may have overshot actual demand.
Academic research has long warned of investment cycles in technology where hype outpaces utility. With hyperscalers set to report, the market is demanding proof that AI can move beyond cost centers to profit drivers.
Fed Decision Looms Amid Oil Price Relief
Adding to the complex landscape, the Federal Reserve's interest rate decision on Wednesday is keeping traders on edge. While a rate hike this week is seen as just a 37.4% probability, markets are pricing in at least a 25-basis-point increase by year-end. Higher borrowing costs could further pressure the capital-intensive AI sector.
Some relief came from oil markets, where prices fell 2.8% to a one-week low after a fragile U.S.-Iran ceasefire held despite drone attack reports. President Donald Trump said the U.S. was having "good talks" with Iran, hinting at a possible deal. Lower energy costs could ease inflation fears, but the immediate focus remains on tech earnings and chip demand signals.
In a related development, analysts at Goldman Sachs recently trimmed their semiconductor growth forecasts, citing inventory corrections and a slower-than-expected enterprise adoption of generative AI. This cautious stance echoes the market's mood as it awaits concrete numbers from the industry's biggest players.
