It was a split screen for tech investors on Thursday. On one side, a deepening selloff in semiconductor stocks erased a staggering $1.6 trillion in market value over just six days. On the other, Apple closed above the $5 trillion mark for the first time, joining Nvidia as the only companies ever to reach that valuation.
The chip rout accelerated after the latest US inflation report showed consumer prices rose in September at their fastest pace in five months. That news raised the odds that the Federal Reserve will keep hiking interest rates, a scenario that tends to hit high-growth tech stocks hardest.
Why higher rates hurt tech
Tech companies, especially chipmakers, are valued largely on profits they expect to earn years down the road. When interest rates rise, the math changes: safer assets like government bonds start paying more, so investors demand a bigger potential payoff from stocks to take on risk. That makes future earnings less valuable in today's dollars, and high-priced tech shares often bear the brunt.
The pain was felt globally. In South Korea, memory chip giants Samsung and SK Hynix each tumbled more than 9% on Thursday, dragging the main Kospi index down 8% and triggering a 20-minute trading halt. The selloff wasn't confined to Asia—chip stocks fell across Europe and the US as well.
But not everyone is convinced this is about weakening demand. ASML, the Dutch company that is the sole producer of the machines used to make the most advanced chips, said it won't be able to meet demand for at least two more years. And Taiwan's TSMC, the world's largest contract chipmaker, forecast strong sales for the final three months of this year.
That suggests the selloff is less about customers canceling orders and more about how much investors are willing to pay for growth in a higher-rate environment. In other words, the underlying business may be fine—but the price tag for that growth is getting harder to justify.
Three things that will decide the next move
Whether this is a short-term wobble or the start of something bigger likely hinges on three factors.
- Inflation. If price pressures keep building, the Fed could raise rates further, and the fallout would be felt in markets worldwide. Investors will be watching every inflation report closely.
- Funding. Bonds issued by CoreWeave, a company that rents out AI computing power, slid sharply this week. That signals growing worry about the firm's ability to repay its debts. Because borrowing has fueled much of the AI boom, lenders' appetite for risk matters. If funding dries up, it could hit the whole sector.
- Orders. Earnings updates due later this month will show whether Big Tech's massive AI spending plans still match the optimism of chipmakers like TSMC. Any sign of a pullback could deepen the selloff.
For everyday investors, the key takeaway is that the chip selloff is a reminder of how sensitive high-growth stocks are to interest rates. Even if the long-term story for AI and semiconductors remains intact, the price you pay for that story matters. Global chip stocks slide as rate fears and AI funding worries mount.
Apple's $5 trillion milestone
Apple's first-ever closing above $5 trillion came after it had touched that level six times during trading in the past, only to fall back by the close. Wednesday marked the first time it finished there, following the company's latest big device reveal—notably including HomeView, its $299 smart home challenger to Amazon's Echo and Alphabet's Google Home.
The milestone caps a rally that has lifted Apple's stock 25% this year. Investors have applauded the company's restraint on AI spending, especially compared with peers like Alphabet, Amazon, and Microsoft, which are pouring hundreds of billions into AI infrastructure. Apple's customers have also shown a willingness to pay premium prices, though the company is raising prices to offset rising chip costs.
Apple is now trading at 37 times next year's expected profits—a rich valuation by most measures—even as reports suggest new iPhone orders aren't as strong as expected. But the company doesn't necessarily need a blockbuster launch to reward shareholders. Its devices and services already generate billions in cash, and without an enormous AI infrastructure bill to pay, Apple can keep buying back its own shares to boost their value. In fact, Apple has returned more than a trillion dollars to shareholders via buybacks and dividends since 2012.
That contrasts sharply with the AI-heavy spending of its Big Tech rivals. Those companies—Alphabet, Amazon, and Microsoft—are up around 10% this year and trade at about 27 times next year's profits. That's cheaper than Apple but still more expensive than the broader S&P 500's 20 times. At those prices, investors need profits to grow quickly. Any disappointment could trigger a sharp selloff, a risk that always comes with owning stocks priced for great things.
For investors, the Apple story is a reminder that there are different ways to win in tech. One path is to spend heavily on AI and hope the investment pays off. Another is to keep costs in check and return cash to shareholders. Both can work, but they come with different risks. Stocks rise as hot PPI meets cooler Treasury yields shows how mixed signals can move markets.
As the week winds down, all eyes will be on whether the chip selloff stabilizes and whether Apple can hold its $5 trillion perch. The next few weeks of earnings will likely provide the clearest signal yet about whether the AI boom is still on solid footing. AI debt fears rattle tech stocks before markets steady.
