Wall Street’s Chip Selloff Goes Global

SPEAKER_1 (0:00)

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Luke Vargas (0:33)

A US chip sell-off goes global on signals that China is catching up in the tech arms race. Plus, Senator Mitch McConnell's staff failed to clear up questions about his health or when he'll return to work.

And Volodymyr Zelensky heads to the White House amid signs that President Trump now holds him in high esteem.

Marcus Walker (0:52)

What remains open, however, is whether this shift in vibes in the White House towards Ukraine will translate into a shift in the substance of US policy.

Luke Vargas (1:01)

It's Tuesday, July 28th. I'm Luke Vargas for The Wall Street Journal. And here is the AM Edition of What's News, the top headlines and business stories moving your world today.

Asian stocks have tumbled today as mounting doubts over the cost of the AI buildout triggered a sell-off in tech shares. Those declines followed a broad dip in chip stocks in the US yesterday, with NVIDIA down about 5 percent. With more, I'm joined by Journal Finance Editor Alex Frangos. Alex, let's start with what is happening today. Some big declines in Asia, notably Japan's Nikkei, off close to 4 percent, and the KOSPI in Korea seeing a double-digit pullback, its biggest decline in four months and leading regulators to not once but twice halt trading. What is going on here?

Alex Frangos (1:50)

What we have is basically huge enthusiasm for chip stocks. You have the Korean market and other places going up massively. Now, we're in a period where people are questioning their assumptions about the enthusiasm for the AI buildout and about competition for making those chips. We have this Chinese chip maker come out, it feels like he came out of nowhere to become China's most valuable company, CXMT, seen as a big competitor and competition erodes profits. That's one thing. Then the Journal reported yesterday that NVIDIA was in talks to provide this $250 billion of backstop financing on OpenAI data center. That sent NVIDIA's shares down 5 percent. Then there was a report in the information that a Shanghai company had made progress in creating these ultraviolet lithography tools that are currently the provenance of a Dutch company called ASML.

This Shanghai company, if it really has built that kind of thing, could definitely give the Chinese a leg up in the tools that are used to create the chips, the most advanced high-end chips. All this has people spooked and sending chip stocks way lower.

Luke Vargas (2:56)

Some of these sources of the market unrest, Alex, are novel. Some aren't, though, especially concerns around circular financing in AI, whether just all of this spending is truly sustainable. Of course, the impact of Chinese competition on some of the long-standing winners in this space, and yet, I wonder if what is new is that this unease is coming right before we start to see hyperscaler earnings in the next few days. What does that make for in the trading sessions to come?

Alex Frangos (3:23)

Yeah. I think investors are concerned that the big hyperscalers are going to say that they're going to be spending a lot more and making a lot less money. We saw that, a preview of that with Google last week, where they had negative free cash flow for the first time, which meant they're burning their resources in order to do this AI buildout. That's potentially good for chip making stocks, but also seen as maybe not sustainable in the long run. People are on edge. People have to remember the expectations are very high. These chip companies and the AI hyperscalers and the different companies, their valuations are extremely high. The stock market, despite the pullback in the NASDAQ, it's still up 8% this year.

So there's still a lot of high expectations baked into the prices of stocks.

Luke Vargas (4:11)

That was Finance Senator Alex Frangos. Alex, thanks for stopping by. I appreciate you as always.

Alex Frangos (4:15)

Thank you, Luke.

Luke Vargas (4:16)

Meta and Microsoft are due to report earnings tomorrow, followed by Amazon and Apple on Thursday.

The leaders of Ukraine and Israel are due to meet with President Trump in Washington today. Ukrainian President Volodymyr Zelensky is in town to attend the funeral of Republican Senator Lindsey Graham, a staunch backer of Kiev. Our Marcus Walker says that the visit comes at a high point in Trump's view of his Ukrainian counterpart.