Chip Stocks Hit Hard Amid Market Rotation: A Detailed Look at Wednesday's Selloff

The stock market delivered a mixed performance on Wednesday as major indexes experienced divergent moves driven by a sharp pullback in semiconductor and artificial intelligence-related equities. The S&P 500 fell 0.51%, sliding to its lowest point in two weeks, while the tech-heavy Nasdaq 100 tumbled 1.77%, marking a seven-week low. The Dow Jones Industrials bucked the trend with a modest 0.53% gain. Futures markets reflected the weakness, with March E-mini S&P 500 contracts declining 0.44% and March E-mini Nasdaq futures dropping 1.69%.

At the heart of Wednesday’s turmoil sat semiconductor manufacturers and related technology stocks. Investors broadly abandoned positions in chip stocks and AI infrastructure providers, triggering a cascade of selling that pressured the broader market. This sector rotation signaled growing caution about the pace of artificial intelligence adoption and raised questions about demand sustainability in the data center equipment space.

Chip Stocks Lead the Decline

The semiconductor sector experienced its most significant downturn in weeks. Advanced Micro Devices headlined the damage, sliding more than 17% after the company issued conservative guidance for first-quarter sales of $9.8 billion, plus or minus $300 million—falling short of some analyst projections around $10 billion. This miss raised fresh concerns about AI chip demand and sparked broader selling across the entire chip stock complex.

AMD’s weakness rippled through the semiconductor supply chain. Sandisk plummeted over 16%, while Micron Technology shed more than 9%. Equipment manufacturers similarly suffered, with Lam Research dropping 8%, Western Digital falling 7%, and Applied Materials along with Seagate Technology each declining more than 6%. Even market leaders faced headwinds, with Nvidia, ASML Holding, KLA Corp, and Broadcom all retreating more than 3%.

The concern about AI infrastructure demand extended beyond chipmakers. Companies providing power equipment and data center support saw substantial outflows. Amphenol collapsed over 11%, while Vistra Corp and Constellation Energy both sank more than 6%. GE Vernova, Vertiv Holdings, and Hubbell similarly declined more than 3%, suggesting investors are reassessing the entire ecosystem surrounding artificial intelligence deployment.

Broader Market Pressures and Economic Crosscurrents

Wednesday’s economic calendar delivered mixed signals for investors navigating policy shifts and corporate guidance. The January ADP employment report revealed US companies added 22,000 jobs, significantly below the consensus expectation of 45,000 and suggesting labor market momentum may be cooling. Conversely, the January ISM services index held steady at 53.8, defying forecasts of a decline to 53.5 and pointing to resilience in service-sector activity.

Mortgage market data added another layer of complexity. MBA mortgage applications contracted 8.9% for the week ending January 30, with the purchase sub-index plunging 14.4%. This weakness coincided with a slight decline in the 30-year fixed mortgage rate, which fell 3 basis points to 6.21% from 6.24% the previous week.

Market sentiment received a boost from the resolution of the partial US government shutdown after President Trump signed a funding deal late Tuesday evening. However, this arrangement carried limitations: the Department of Homeland Security received funding only through February 13, while the rest of government was funded through September 30. The Treasury simultaneously announced that next week’s quarterly refunding would total $125 billion in T-note and T-bond sales, right in line with expectations, and signaled its intent to maintain auction sizes “for at least the next several quarters.”

Government Bonds and Interest Rate Dynamics

The Treasury market settled with minimal net movement as traders balanced competing forces. March 10-year T-note futures rose 0.5 of a tick, while the underlying 10-year yield climbed 0.8 basis points to 4.274%. Stock market weakness provided support for bonds, as did January’s softer-than-expected ADP employment report, both factors suggesting a more dovish Federal Reserve bias.

The stronger ISM services reading, however, presented a headwind for bond prices. Additionally, upcoming supply pressures loom, with the Treasury set to auction $125 billion of notes and bonds in next week’s quarterly refunding. Bond traders also contended with lingering negative sentiment stemming from President Trump’s nomination of Keven Warsh as the next Federal Reserve Chair. Market participants view Warsh, who served as a Fed Governor from 2006 to 2011, as more hawkish than alternative candidates and recall his consistent emphasis on inflation risks during his prior tenure.

European government bond yields registered mixed results. Germany’s 10-year bund yield dropped 3.2 basis points to 2.859%, while the UK’s 10-year gilt yield rose 2.9 basis points to 4.546%. In the Eurozone, January core CPI was revised downward by 0.1 percentage point to 2.2% year-over-year—the slowest pace in four years. The composite PMI for January was similarly trimmed to 51.3 from 51.5. Eurozone producer prices fell 0.3% month-over-month and 2.1% year-over-year, marking the steepest annual decline in 14 months. Market pricing suggests just a 1% probability that the ECB will raise rates by 25 basis points at Thursday’s policy meeting.

Individual Stock Performance: Winners and Losers

Beyond the chip stock carnage, individual names demonstrated sharp divergence. Cryptocurrency-exposed equities descended alongside a broader pullback in digital assets, with Bitcoin declining more than 3%. Galaxy Digital Holdings and MARA Holdings both dropped over 8%, while Riot Platforms fell 7%. Coinbase Global retreated more than 6%, and MicroStrategy declined more than 2%.

Several other market leaders disappointed. Boston Scientific plunged over 17%, the steepest decline in the S&P 500, after guiding full-year adjusted EPS to the $3.43-$3.49 range, with the midpoint below consensus of $3.47. Cencora reported first-quarter revenue of $85.93 billion, missing the $86.18 billion expectation and triggering an 8% retreat. T Rowe Price Group fell more than 5% following fourth-quarter adjusted EPS of $2.44, below the $2.47 consensus. Uber Technologies sank over 4% after forecasting first-quarter adjusted EBITDA of $2.37-$2.47, with the midpoint below the $2.45 consensus.

The day’s bright spots included strategic acquisitions and positive earnings surprises. Silicon Laboratories surged more than 49% after announcing its acquisition by Texas Instruments for $231 per share in an all-cash deal valued at $7.5 billion. Super Micro Computer led S&P 500 gainers, soaring more than 13% after forecasting third-quarter net sales of at least $12.30 billion, substantially exceeding the $10.25 billion consensus. Eli Lilly climbed more than 10% following strong fourth-quarter revenue of $19.29 billion—better than the $18.01 billion consensus—and providing full-year guidance of $80-$83 billion, above the $77.71 billion expectation.

Fortive Corporation rose more than 10% after guiding 2026 adjusted EPS to the $2.90-$3.00 range, beating the $2.85 consensus. Amgen led Dow Jones gainers with an 8% jump after reporting fourth-quarter revenue of $9.87 billion, surpassing the $9.46 billion consensus. MGM Resorts International advanced 8% following disclosure that its BetMGM joint venture generated $2.8 billion in net revenue for fiscal 2025, up 33% year-over-year. Johnson Controls International added 4% after reporting first-quarter net sales of $5.80 billion, beating the $5.64 billion expectation.

Earnings Season Momentum and Forward Guidance

Earnings season remains a critical driver as corporate America reports fourth-quarter results. The S&P 500 saw 150 companies scheduled to report this week, with the first 237 companies reporting results showing 81% beat expectations. According to Bloomberg Intelligence, S&P 500 earnings growth is projected to reach 8.4% in the fourth quarter—the tenth consecutive quarter of year-over-year expansion. Excluding the Magnificent Seven megacap technology stocks, earnings growth is expected to decelerate to 4.6%, highlighting the disproportionate contribution of mega-cap names.

Looking ahead, earnings reports continue through the week from major names including Amazon, Bristol-Myers Squibb, ConocoPhillips, Linde, and others. Investors will parse these results for signals about corporate health, capital allocation priorities, and management confidence heading into 2026.

Market Outlook and Policy Uncertainty Ahead

The market’s near-term trajectory appears shaped by competing forces. Financial markets are currently pricing in just a 10% probability of a 25-basis-point rate cut at the Federal Reserve’s March 17-18 policy meeting, suggesting limited near-term easing expectations. This contrasts with the dovish signal sent by weak employment data but conflicts with hawkish commentary surrounding the Fed Chair nomination and persistent inflation concerns.

International markets posted divergent results, with the Euro Stoxx 50 declining 0.41%, China’s Shanghai Composite advancing 0.85%, and Japan’s Nikkei 225 falling 0.78%. The uneven global performance underscores varied recovery paces and policy trajectories across major economies.

For investors, the week ahead will center on additional economic reports and continued earnings revelations. Initial weekly unemployment claims are forecast to edge up 3,000 to 212,000 on Thursday, while Friday’s University of Michigan consumer sentiment index is expected to slip 1.4 points to 55.0. How chip stocks and the broader technology sector navigate these data releases and navigate prevailing uncertainty about artificial intelligence adoption could determine whether Wednesday’s selloff represents a temporary pullback or signals a more sustained shift in market leadership.