Chip Stocks Slump as AI Spending Reality Hits
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- The Nasdaq 100 fell 3.3% on Tuesday while the S&P 500 closed 1.4% lower, after a selloff in South Korea spooked investors about high-flying chip stocks that had posted triple-digit gains over the past year.
- Micron Technology dropped 13.2%, the steepest single-stock casualty, as investors unwound momentum in memory-chip names.
- Alphabet led Monday's decline after reports it was losing key AI talent to competitors.
- Only 26% of 204 U.S. executives surveyed by KPMG in May said AI operating costs are fully visible, and Uber reportedly burned through its 2026 AI coding budget in just four months and now limits employee spend.
- The cost of compute is falling broadly, but prices for OpenAI and Anthropic frontier models remain far more costly, and Deutsche Bank's Jim Reid noted some companies only need 'a reliable workhorse — not a supercar.'
- Mandeep Singh of Bloomberg Intelligence argued demand for AI compute still outpaces available supply by 5-10x, and that a drop in compute pricing would benefit hyperscalers rather than hurt them.
Why it matters: The selloff marks a shift from AI hype to scrutiny of returns: only 26% of executives can see their AI operating costs, Uber exhausted a full-year AI coding budget in four months, and the gap between cheap commodity compute and expensive frontier models is forcing companies to choose between a workhorse and a supercar.
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