Why tech stocks are getting hammered

Tech stocks took another big hit Tuesday as investors sold off shares of companies that have powered the artificial intelligence boom.

Technology companies have been spending billions of dollars investing in data centers and infrastructure needed to support the race to advance AI. But sky-high valuations and geopolitical tensions have some investors questioning whether massive AI spending will pay off, analysts said.

Reflecting the unease, the tech-heavy Nasdaq composite dropped roughly 2%. The Standard & Poor’s 500, a stock market index that tracks the performance of the largest U.S. publicly traded companies, fell by more than 1%.

Share prices for major California tech companies including Nvidia, Qualcomm, Intel and Marvell Technology all dropped. Meta Platforms, Apple, and Google’s parent company, Alphabet, also saw their stock prices slide, though the decline wasn’t as large as the drop in chip stocks.

Shares of Micron Technology, a U.S. memory chip manufacturer, plunged by more than 13% a day before the company was scheduled to report its third-quarter financial results. Anxiety in the U.S. spilled over from Asia, where South Korean tech companies SK Hynix and Samsung Electronics, both major computer memory chip manufacturers, saw their stocks plunge Tuesday by more than 12%.

“Investors are just a bit skittish after very strong moves in tech stocks where any hint of caution causes some investors to hit the sell button,” said Dan Ives, an analyst who heads technology research at Wedbush Securities, adding that it’s a “gut-check moment.”

On Monday, SpaceX saw its shares plunge 16% following a record-breaking initial public offering earlier this month. Its share price then rebounded on Tuesday, closing up less than 1% to roughly $156 .

Tech companies have been making big bets on the role AI will play in people’s work and personal lives. They’ve been improving chatbots that can generate code, words, photos and videos. The companies are also betting that “AI agents” will also be able to proactively tackle more in the future, automating repetitive tasks in customer service, online shopping and other industries. They’re releasing more AI-powered hardware such as smartglasses.

Major tech companies are going head-to-head in the race to dominate AI, competing to attract talent and consumers into using their products. Alphabet saw its stock slip after two of the company’s prominent AI researchers left for rival companies OpenAI and Anthropic.

Despite profitability questions, AI use has been growing. Roughly half of U.S. adults use an AI chatbot, according to a report from the Pew Research Center released in this month. They’re using these tools for search, work tasks, entertainment and even companionship. More U.S. adults reported using OpenAI’s ChatGPT followed by Google’s Gemini, Microsoft Copilot and Meta AI.

Amid all the hype and spending, there have also been growing fears about whether AI will take over people’s jobs and if the boom will lead to a bubble that will eventually burst. California AI startups OpenAI, valued at $852 billion, and Anthropic, valued at nearly $1 trillion, are both preparing to potentially become publicly-traded companies.

“I don’t view this as a bubble,” Ives said. “I view it as we’re going to go through these white knuckle moments as tech stocks continue to move higher, but the bears will continue to yell fire in a crowded theater when we have these pullbacks.”

Economic factors could also impact how much people are willing to invest in tech company stocks. There’s anxiety over whether the new Federal Reserve Chair Kevin Warsh will raise interest rates, making it more expensive to borrow money. That could cut into a company’s profit margins or decrease consumer spending. The United States’ war with Iran is also driving up gas prices while the U.S. inflation rate rose to 4.2% in May.

The AI boom is fueling the demand for memory and storage chips, but prices for them are on the rise, prompting some companies such as Apple to look at raising prices for consumer electronics.

Globally, AI spending is projected to increase to $2.59 trillion in 2026, up 47% year-over-year, according to a forecast from Gartner.

Driven by AI demand, memory and storage vendors have significantly outperformed the S&P 500 and the SOX index, a global semiconductor and microchip index, since the start of 2025, according to a note from BNP Paribas.

Still, investors are on edge ahead of Idaho-based Micron Technology’s earnings on Wednesday, said Gil Luria, head of technology research at D.A. Davidson. Since January, Micron Technology’s stock has climbed more than 233% to more than $1,000 per share.

“Any indication of a slowdown in demand for AI is seen as a potential turn in the cycle,” Luria said. “While the overwhelming sense is that demand is still far exceeding supply, investors are waiting for Micron to indicate that is still the case.”

Times staff writer Nilesh Christopher contributed to this report.