Chip stocks extend selloff as China AI breakthrough rattles markets

Published 5 hours ago 30 sources

The growing skepticism around artificial intelligence investments reached a fever pitch in mid-July 2026 as tech stocks slumped, a Japanese chipmaker lost half its value, and one prominent critic labeled OpenAI “the Lehman Brothers of AI.” The convergence of falling share prices, ballooning losses at the world’s most prominent AI company, and a sharp rotation away from semiconductor stocks has turned what was once a fringe argument into a mainstream financial debate.

Chip stocks extend selloff as China AI breakthrough rattles markets

Tech Rout Deepens

The Nasdaq 100 has become the weakest major U.S. equity benchmark in July, declining 2.7% in the week ending July 16 alone — far worse than the S&P 500 at -0.6% and the Dow Jones Industrial Average at -0.2%. The divergence came even as major Wall Street banks like Goldman Sachs and JPMorgan Chase reported strong second-quarter earnings. A surprise AI breakthrough from China on July 17 deepened the chip selloff further, with 28 of 30 stocks in the Philadelphia Semiconductor Index trading lower. Yyoutube Aactionforex

In Tokyo, Kioxia Holdings plunged to its daily limit down on July 17, falling to ¥52,110 — more than 50% below its all-time high of ¥112,700 set on June 22. The collapse erased approximately ¥30 trillion in market capitalization in under a month. Reuters reported that the broader rout in AI-related stocks began accelerating in late June after reports surfaced that OpenAI was considering delaying its initial public offering. BBiggo Kkabutan Rreuters

OpenAI Under the Microscope

On July 15, independent tech journalist Ed Zitron published an essay calling OpenAI “the Lehman Brothers of AI,” arguing that its eventual failure “would have a violent, punishing effect on the entire stock market”. His thesis rests on verified numbers: OpenAI posted $13.07 billion in revenue in 2025 against $34 billion in total costs, producing an operating loss of roughly $21 billion, according to figures independently verified by the Financial Times. 2247wallst

Zitron’s argument centers on contagion risk. Oracle, which carries $638 billion in remaining performance obligations tied substantially to AI infrastructure, has seen its stock fall more than 35% year to date. OpenAI confidentially filed IPO paperwork with the SEC in June 2026 following an $850 billion valuation in March, but an offering initially eyed for late 2026 now appears likely to slip to 2027. 2247wallst

Meanwhile, Sam Altman has acknowledged management shortcomings in recent months. According to Yahoo Finance, Altman “has been straightforward about his management failings” as the company navigates lawsuits, partner disputes, and questions about its cash burn. The Economist reported that OpenAI is projected to burn through $17 billion in cash in 2026. YYahoo Finance Eeconomist

A Market at a Crossroads

The debate remains contested. OpenAI’s revenue tripled year-over-year from $3.7 billion to $13 billion, and Nvidia has still gained more than 11% in 2026. Bank of America’s bubble risk gauge flagged elevated valuation risks in semiconductors with a reading of 0.91, though institutions like BlackRock maintain overweight positions on U.S. equities. Capital Economics declared in late June that “the AI rally may be approaching its final stages” and predicted a 21% S&P 500 decline by end of 2027. Ffortune Ccmegroup 2247wallst

Whether this proves to be a healthy correction or the beginning of something worse may depend on a single question: can AI companies grow into the trillions being spent on their behalf before the bills come due?