Chip Rout Deepens as AI Financing Fears Mount Ahead of Fed

The AI boom has driven hyperscalers to spend hundreds of billions of dollars on data centers and semiconductors, powering a sharp rally in chip stocks while stretching valuations and balance sheets. Investors are now scrutinizing whether returns can justify the outlays. Nvidia’s role as both a supplier to OpenAI and a potential financier of its purchases has sharpened fears of “circular financing,” in which vendors help fund demand that supports their own revenue, leaving the sector more exposed if borrowing costs rise or AI spending slows.

On July 28, the Philadelphia Semiconductor Index fell 3.5% intraday, with Micron down 8.8%, Intel 4.6% and SanDisk 13%. Nvidia had dropped about 5% on July 27 after reports it could guarantee roughly $250 billion of financing for an OpenAI data-center project in Ohio and separately finance $350 billion of chip purchases. Bitcoin slid 3.1% to about $63,495. Traders assigned a 28% probability to a Federal Reserve rate increase on July 29, while Microsoft, Amazon, Meta and Apple were due to report earnings during the week.