Nasdaq Drops 0.8% for Second Straight Session as AI Chip Stocks Suffer Worst Two-Day July Selloff in Months

NEW YORK — The Nasdaq Composite fell for a second consecutive session Thursday, declining 0.8% to close at 25,832.67 as semiconductor stocks endured their steepest two-day selloff since early June, even as the Dow Jones Industrial Average surged to a record high and Apple's near-5% gain underscored just how sharply investor sentiment has divided between the technology sector's winners and losers heading into the Independence Day holiday weekend.

The Philadelphia Stock Exchange Semiconductor Index fell as much as 6% Thursday, putting it on pace for a two-session decline of roughly 12%, the most since the early June rout that preceded the sector's subsequent recovery. The VanEck Semiconductor ETF dropped 4.5%, led by a 13.6% decline in Teradyne and an 11.5% slide for KLA. Nvidia shares pulled back 1.4%, while Micron gave up 5.5%, extending a broader pullback from levels near all-time highs that the stock had been trading around just days earlier.

Semiconductor stocks are starting the third quarter with their worst two-day selloff in nearly a month, according to Bloomberg, with the Philadelphia index coming off its best quarter ever, an 88% advance in the second quarter. That context matters: when a sector has appreciated that much, that fast, even modest shifts in the underlying investment thesis can translate into significant price corrections as investors who bought at much lower levels begin locking in profits.

The catalyst for the two-day pullback is a combination of valuation concerns, profit-taking at historically elevated price levels and a genuine reassessment of how much more the artificial intelligence infrastructure spending narrative can drive semiconductor earnings per share higher from their already extraordinary recent levels. The Roundhill Memory ETF was pacing on Thursday to end the holiday-shortened week down nearly 15%. Micron was tracking to end the week down more than 12%, while Sandisk's two-day decline totaled more than 20%.

Those declines arrived even as the companies' underlying fundamentals have remained largely intact. No negative earnings pre-announcement from any major chip company has triggered the selling, and no concrete data point suggesting AI data center orders are slowing has surfaced during the week. What has shifted is investor psychology: after an 82% first-half gain across chip stocks broadly, the bar for continued appreciation has risen sharply, and multiple compression in richly valued growth names can be rapid when momentum turns.

Adding a new element to the AI investment debate, reports emerged Thursday that OpenAI had entered discussions about selling a 5% stake to the U.S. government, a development that circulated through technology desks during the session. The report, while not immediately negative on its face, added to a broader reconsideration of the AI trade's near-term dynamics rather than its long-term direction.

Meta Platforms delivered another complication for the sector. Reports Wednesday that the social media giant would begin renting out its excess computing infrastructure, effectively entering the cloud business, initially boosted Meta's shares by nearly 9%. But by Thursday, JPMorgan analyst Doug Anmuth had cautioned clients about the strategic implications, arguing the company's AI capital should be focused elsewhere. "We'd much prefer that Meta develop core AI products, leverage them over its base of around 4 billion users, and require massive compute for its own inference rather than selling access to its infrastructure," Anmuth wrote. Meta fell nearly 5% Thursday as investors processed that caution, reversing a portion of Wednesday's cloud-announcement surge.

The striking divergence within Thursday's session illustrated in concentrated form the rotation that has defined the market's character since the third quarter began. While semiconductor names fell broadly, Apple's 4.84% advance, driven by reports the company had instructed parts suppliers to prepare for 10 million foldable iPhones this fall, added enough Dow points to push the blue-chip average to an all-time closing record. McDonald's, Walt Disney, Visa and Walmart also posted gains, reflecting the rotation into more defensive and consumer-facing names that has characterized the Dow's outperformance during each of the chip sector's recent down sessions.

"This is a rotation potentially out of a sector that's been red hot for the last few months and into other areas, but I also do think that there's a little bit of a revaluation of the AI trade in itself," one analyst told CNBC, capturing the dual dynamic at play.

Netflix offered the most prominent exception to tech's Thursday struggle, gaining 5% in afternoon trading for its best day since late February. The streaming company's advance made it a notable outlier within the Nasdaq-100 as the broader index fell more than 2% at its worst intraday point, suggesting some investors are selectively rotating within the technology sector rather than leaving it entirely. Palantir Technologies also bucked the trend, adding 4% after D.A. Davidson analyst Gil Luria upgraded the stock to Buy from Neutral, citing competitive advantages in government AI software and what he described as an attractive valuation following the stock's steep June decline.

The market's response to the June jobs report, which showed 57,000 positions added against expectations of 115,000, provided the macro backdrop that helped cushion some of the chip sector's losses by reducing near-term expectations of additional Federal Reserve rate increases. Treasury yields declined on the soft employment data, with the rate-sensitive dynamic benefiting defensive and dividend-paying sectors even as it did relatively little to arrest the momentum-driven selling in high-multiple semiconductor names.

With U.S. markets closed Friday for Independence Day, the pre-holiday close leaves investors with a bifurcated picture to consider over the long weekend: a Dow at all-time highs powered by traditional sector strength and Apple's foldable iPhone narrative, alongside a Nasdaq that has now declined in each of the first two sessions of the third quarter as the great AI chip trade of 2026 encounters its most sustained period of investor doubt since the sector's remarkable first-half run began earlier this year.