Futures tied to the tech-heavy Nasdaq dropped on Tuesday on declines in chip stocks over concerns about the sustainability of the AI-driven rally despite strong results from Samsung, while SpaceX shares dipped ahead of their Nasdaq-100 debut.
Elon Musk's SpaceX NASDAQ:SPCX was set to begin trading as part of the Nasdaq-100 NASDAQ:NDX index on Tuesday and a wave of brokerages initiated coverage on the stock as an industry-mandated quiet period ended. Its shares fell 1.7% in premarket trading.
Chip shares led losses, with memory chipmakers Micron Technology NASDAQ:MU down 5.6%, Western Digital NASDAQ:WDC off 6.2% and Sandisk NASDAQ:SNDK losing 5.2%.
Samsung Electronics' KRX:005930 shares sank in South Korea despite the company reporting a 19-fold jump in second-quarter operating profit and surpassing its combined earnings over the past three years.
"The wider issue is whether this is a new chapter for investor reaction, related not to any weakness in demand or immediate profitability," said Richard Hunter, head of markets at interactive investor.
"But rather, whether the level of earnings can be maintained in order to repay the trillions of dollars which have been funneled into AI investment by the hyperscalers."
Chip stocks have been some of the biggest winners of the AI trade so far this year amid hopes of insatiable AI demand, though concerns of the sector being overbought and investors taking profits have led to some volatility lately.
Other chip-related stocks including Intel NASDAQ:INTC fell 4%. Marvell Technology NASDAQ:MRVL eased 4.5% and Qualcomm NASDAQ:QCOM lost 2.4% amid sectorwide weakness.
Another test for the appetite for chip stocks looms later this week, when South Korean giant SK Hynix's KRX:000660 U.S. listing begins trading on the Nasdaq.
At 04:56 a.m. ET, Dow E-minis (YMcv1) rose 86 points, or 0.16%, S&P 500 E-minis (EScv1) fell 11.75 points, or 0.15%, and Nasdaq 100 E-minis CME_MINI:NQ1! were down 270.75 points, or 0.9%.
Dow futures bucked the trend as software plays Microsoft NASDAQ:MSFT, Salesforce NYSE:CRM and IBM NYSE:IBM rose. The blue-chip index crossed the 53,000-point mark for the first time on Monday.
The index clocked its fifth 1,000-point milestone this year, as receding oil prices on the back of easing Middle East tensions have offered support lately.
Morgan Stanley said in a note dated Monday that the recent weakness in U.S. semiconductor stocks is a sign that market gains are broadening, with investors likely to turn toward AI hyperscalers.
Most megacap and growth stocks were trading higher, barring Tesla NASDAQ:TSLA and Nvidia NASDAQ:NVDA, which fell around 1% each.
Fiserv NASDAQ:FISV climbed 7.1% following media reports that the payments firm held talks with U.S. banks including JPMorgan NYSE:JPM and Bank of America NYSE:BAC to sell its payments infrastructure business that handles debit card transactions.
Rivian NASDAQ:RIVN dropped 7.6% after the electric-vehicle maker launched an offer to sell 75 million shares, even as it forecast second-quarter revenue above analysts' estimates.
Meanwhile, U.S. Federal Reserve watchers will get another glimpse into how new Chair Kevin Warsh steers the central bank when it releases the minutes of its last meeting on Wednesday, the first of his tenure.
Traders currently see at least one 25-basis-point rate hike on the cards this year, according to data compiled by LSEG.