TL;DR
Semiconductor stocks lost 12% in two sessions, while the Dow hit a record high, as investors shifted from AI chip makers to enterprise software companies. A weak jobs report crushed the odds of a rate hike.
The trade that defined the first half of 2026, buying anything close to a GPU, broke down in the holiday-shortened week before Independence Day. He PHLX Semiconductor Index, which had risen more than 80% in the first halfIt sank 6.3% on Wednesday and 5.4% on Thursday, a drop of about 12% in two sessions.
As chip stocks plunged, the Dow Jones Industrial Average closed at a record 52,900 on Thursday, boosted by a 5% rise in Apple after Bloomberg reported that the company had ordered its suppliers to prepare 10 million foldable iPhones for a launch this fall. All three major indices finished the week higher despite the rotation.
The numbers behind the crack
Micron Technology led the decline, falling more than 10% on Wednesday alone. SanDisk, Applied Materials and Lam Research fell about 10%, while Intel and Marvell each lost about 9%.
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Sales intensified after reports that SK Hynix was slowing its expansion of high-bandwidth memory production, a sign that the supply side of the AI ​​infrastructure boom may be catching up with demand. Equipment makers ASML, KLA and Applied Materials fell 5% to 6%, suggesting investors are pricing in a slowdown in orders from chip factories.
The damage to chip stocks came against a backdrop of broader macroeconomic uncertainty. June nonfarm payrolls reached only 57,000about half the consensus estimate of 110,000, and the April and May revisions cut a total of 74,000 jobs from previous figures.
The unemployment rate fell to 4.2%, but only because the labor force participation rate fell to 61.5%, its lowest level since March 2021.
where the money went
The rotation was not a flight from AI but a reassessment of where the returns came from. Enterprise software stocks, led by ServiceNow, Snowflake and Palantirhave been the biggest beneficiaries, with the iShares Expanded Tech-Software ETF rising 35% from its April low.
Snowflake rose 36% in late May after reporting strong earnings, adding 616 net new customers and raising its million-dollar account count to 779. ServiceNow, Oracle and Palantir each rose 6% to 8% in the following session.
The logic is simple. Investors spent two years paying premium multiples for companies that supply AI infrastructure and now want proof that it is generating revenue for the companies that deploy it.
Palantir’s first-quarter revenue hit $1.63 billion, up 85% year-over-year.. ServiceNow has projected $30 billion in subscription revenue by 2030, about a third of which is attributed to its AI product, Now Assist.
The question of valuation
The first half left the three major indices in good shape. The S&P 500 gained 9.6%, the Nasdaq rose more than 12% and the Dow rose 8.9%, its best first-half performance since 2021.
But he Shiller’s CAPE ratio stands at 38 to 40Second only to the dot-com peak of 44, and market concentration in the largest technology stocks has surpassed 2000 levels. The difference, advocates argue, is that this time the companies are among the most profitable in corporate history, with only Nvidia reporting net income exceeding $120 billion by fiscal 2026.
The counterargument is that profitability at the top of the supply chain does not guarantee profitability in the middle. Hyperscalers are on track to spend more than $650 billion on AI infrastructure in 2026, and the Question that scared the markets in the holiday-shortened week. It’s whether anyone below Nvidia in the stack will get returns that justify those prices.
What the Fed changes
The weak jobs report reshaped the interest rate outlook overnight. The probability of a Fed rate hike at the July 29 meeting plummeted to around 22%, with the overwhelming favorite now to hold it at 78%.
Federal Reserve Chairman Kevin Warsh called the jobs outlook “stable” and continued to emphasize his commitment to the 2% inflation target, without offering future guidance on the path of rates. A Fed on hold gives stock markets one less reason to sell, but it also removes the catalyst that had been supporting bank stocks and the dollar earlier in the quarter.
what to look at
The market reopens on Monday, approaching the second quarter earnings season. The most important results will come from the AI ​​software layer: whether Snowflake’s customer onboarding accelerates, whether Palantir’s business portfolio converts, and whether ServiceNow’s AI onboarding rate remains at projected levels.
If software companies deliver, the churn will seem prescient. If they disappoint, the AI ​​industry will face a tougher question: What happens when the infrastructure is built and the applications don’t arrive?
