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Tech stocks tumble for a second day. Here's what is behind the selloff.
A major tech selloff stretched into a second day Tuesday as investors questioned whether artificial intelligence will generate the profits that have fueled lofty valuations for companies such as Alphabet, SpaceX and Nvidia.
Around noon ET, the tech-heavy Nasdaq Composite was down 409 points, or 1.6%, to 25,758. The decline marks a second day of losses, with the Nasdaq closing 1.3% lower on Monday.
The S&P 500 tumbled 1%, while the Dow Jones Industrial Average rose 43 points, or 0.1%, to 51,756.
For months, Wall Street has embraced tech stocks, helping drive the market to record highs on optimism that companies pouring billions into AI would translate those investments into faster revenue growth and higher profits. Investors are now demanding more evidence that the spending will pay off.
On Tuesday, several of the stocks that have powered the market's rally came under pressure as skepticism grew.
"For a long time, the market treated AI spending as unquestionably positive," Nigel Green, CEO of the financial consultancy deVere Group, said in an email Tuesday. "Investors are now becoming more demanding. They want evidence that unprecedented spending will translate into unprecedented profits."
SpaceX shares rebounded after falling in early trading, rising $8.81, or 5.7%, to $163.41 after plunging 16% Monday.
Earlier this month, investors piled into the stock after the company's initial public offering, sending it above $200 within days. The stock, however, has slumped since June 17 as investors fret over whether the company can justify its valuation of more than $2 trillion.
Global effects
The tech rout spread beyond the U.S., with South Korea's Kospi tumbling 10.0% to 8,203.84. Signs of greater regulatory scrutiny in the country's semiconductor sector also added to the hand-wringing.
Bret Kenwell, a U.S. investment and options Analyst at eToro, told CBS News that a broader weakness and global volatility in tech stocks is weighing on U.S. shares.** **During midday trading on Tuesday, chip-maker Nvidia fell 2.8%, while Broadcom tumbled 2.3%.
Alphabet, part of the Magnificent Seven, also came under pressure, falling 1.1%.
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While the stock sell-off ignited sharp declines, Green said he doesn't believe markets are in trouble.
"What we're witnessing now is investors demanding proof instead of promises," he said. "That shift can be uncomfortable, but it's ultimately healthy."
Anxiety over interest rates
Anxiety is also growing that rate hikes later this year could hamper growth. The Federal Reserve's rate-setting committee last week opened the door to an increase in borrowing costs in 2026, as it seeks to keep a lid on accelerating inflation caused by months of rising oil prices caused by the Iran war.
Economists are forecasting that a measure of inflation for U.S. consumers — due out Thursday from the government — sped up to 4.1% in May from 3.8% in April.
Traders are betting on a nearly 90% chance the Fed will raise its federal funds rate at least once by the end of the year, up from the 57% chance seen just a week ago, according to data from CME Group.
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