Dow Drops as Chip Stocks Crumble, Oil Surges on Iran Tensions—July 8

U.S. stock indexes retreated on July 7 as investors rotated out of artificial intelligence and semiconductor stocks, citing concerns that chip valuations have outpaced earnings growth. The Dow fell 130.76 points, or 0.25%, to 52,925.15, while the S&P 500 slid 0.45% to 7,503.85 and the Nasdaq Composite dropped 1.16% to 25,818.69. Oil prices jumped 3% after the U.S. revoked Iran’s waiver to sell crude.

Chip stocks lead the selloff despite strong earnings

Memory chipmakers tumbled after Samsung Electronics reported a 1,800% surge in second-quarter operating profit, yet the results failed to calm investor nerves. Samsung shares fell 6.9% in Seoul, triggering a broader semiconductor rout. Micron Technology dropped 4.7%, Intel fell 9.7%, and Advanced Micro Devices slid 6.5%. The VanEck Semiconductor ETF (SMH) fell more than 3%.

Mike Bailey, director of research at FBB Capital Partners, said expectations have climbed too high. “Expectations are up, and fundamentals are struggling to meet these high sky-high demands,” Bailey told CNBC. Investors also grew anxious after Reuters reported that Chinese startup DeepSeek is developing its own AI chip, threatening the dominance of established chipmakers.

Oil prices spike on Iran tensions and U.S. policy shift

Crude oil surged after Iran attacked a Qatari liquefied natural gas tanker near the Strait of Hormuz. Brent crude futures settled up 3% at $74.16 per barrel, while U.S. West Texas Intermediate futures gained nearly 3% to $70.44. The gains extended after the U.S. revoked the waiver authorizing Iranian oil sales.

Energy stocks rallied on the news. Occidental Petroleum (OXY), Devon Energy (DVN), and APA all gained between 5% and 6%, making energy the only S&P 500 sector to post gains on the day.

Rotation out of tech into healthcare and financials

Investors moved capital into defensive sectors as AI enthusiasm cooled. Eli Lilly gained nearly 3%, JPMorgan Chase and Microsoft posted gains, and Walmart shares rose after the retailer announced price cuts on ground beef and other products. The pullback followed a record-setting day on July 6 when the Dow topped 53,000 for the first time.

Richard Hunter, head of markets at Interactive Investor, said the core issue is whether chip earnings can justify the trillions of dollars already invested in AI infrastructure. “The wider issue is whether this is a new chapter for investor reaction, related not to any weakness in demand or immediate profitability, but rather whether the level of earnings can be maintained.”

Labor market weakness adds to economic concerns

Beneath the stock market turbulence, U.S. employment data raised red flags. The economy added only 57,000 jobs in June, far below economist expectations of 125,000. The unemployment rate fell to 4.2%, but only because workers left the labor force entirely, with labor force participation dropping to 61.5%.

Camelia Kuhnen, research director at the Kenan Institute, warned that early retirements among prime-working-age adults will dampen future economic growth. Long-term unemployment also remains elevated at 27% of all jobless workers, making it harder for displaced workers to find stable employment.

Final Thoughts

The market’s retreat reflects a reset in AI stock valuations after a months-long rally. With chip stocks under pressure and oil prices elevated, investors face competing forces: energy strength offset by tech weakness. Monitor earnings reports from SK Hynix and other chipmakers this week for clues on whether the selloff has run its course.

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