Chip slump erases $1.3 trillion in stock market value

The PHLX chip index (.SOX) slumped 10.3% in its deepest one-day loss since March 2020, when the coronavirus pandemic threw global markets into a tailspin.

Friday's selloff added to losses on Thursday after Broadcom issued a quarterly report that showed demand for its custom AI ⁠chips business falling short of lofty expectations.

The PHLX's combined loss of 12% over two sessions shows investors are becoming more concerned about pricey, high-flying tech stocks just as Elon Musk prepares a blockbuster initial public offering next week for SpaceX at an exceedingly high $1.75 trillion valuation.

The chip index hit a record high on Wednesday, and even after Friday's losses it remains up 73% year to date.

Nvidia, the world's most valuable chipmaker, fell about 6%, cleaving more than $300 billion from its market capitalization.

Micron Technology tumbled 13%, ‌evaporating about $150 ⁠billion in market value. Recent investor darling Marvell Technology (MRVL.O) gave back 17%, while AMD lost almost 11%.

"You've had a lot of people here that were just blindly buying the dip," said Dennis Dick, a proprietary trader at Triple D Trading. "Blindly buying the dip had been ⁠winning you money, but that ended today."

Worries about higher interest rates also spooked investors across the U.S. stock market following stronger-than-expected jobs data, and the S&P 500 (.SPX) fell 2.6%.

One of the ⁠biggest beneficiaries of the AI race, Broadcom, lost 7.9%, bringing its two-day loss to almost 20%.

"The semiconductor sector was way overbought. That's why we're seeing the sell-off. ⁠I don't think it's the end of the (semiconductor) bull market," said Ohsung Kwon, Chief Equity Strategist at Wells Fargo.