Chips Drag the Nasdaq Down as the AI Trade Wobbles

The AI trade had a rough Wednesday. A broad selloff in semiconductor stocks dragged the Nasdaq down more than 2 percent and knocked the S&P 500 off about 1 percent, even as the Dow eked out a small gain. After a long, chip-led rally, investors are taking profits and questioning how strong AI demand really is.

The split tape tells the story. The Dow rose 0.19 percent while the Nasdaq fell, a rotation out of the crowded tech winners and into steadier names. Semiconductors led the drop, the same stocks that powered the market to records, now the ones getting sold. When the leaders crack, the whole index feels it.

Two worries are driving it. Traders are banking gains after a run that lifted chip stocks sharply since the spring, and they are starting to question whether AI spending will keep growing at the pace already priced in. Nvidia, the heart of the trade, is under pressure heading into its annual shareholder meeting, with some prediction-market bettors turning bearish on the stock for the first time in a while.

The backdrop is shifting too. Oil fell below 74 dollars as the Strait of Hormuz looks set to reopen, easing one inflation worry, while the dollar held near multi-year highs. Lower oil helps the broad inflation picture, but it does nothing to calm the specific fear hanging over tech, that the AI capex boom may be closer to its peak than its start.

Thursday raises the stakes. May PCE, the Fed's preferred inflation gauge, lands alongside a third estimate of first-quarter GDP, and a hot number would harden the hawkish Fed that already has the market on edge. A wobbling AI trade and a hawkish Fed together make a fragile setup going into a major data print.

So the engine of the rally stalled for a day, and the whole index felt it. Nasdaq down 2 percent, chips sold, the Dow quietly green. One soft session is not a top, but it shows how much rides on AI demand staying hot. Watch Nvidia's meeting today and Thursday's PCE.