US stocks fell sharply on Tuesday as investors continued to pull money from technology shares, with losses in major memory chipmakers adding to concerns that AI-linked valuations have become stretched.
The Nasdaq Composite dropped 2.1%, leading declines across Wall Street, while the S&P 500 fell 1.4%. The Dow Jones Industrial Average, which has less exposure to large technology companies, edged only slightly lower.
Concerns over potential Federal Reserve rate hikes combined with profit-taking in some of the market’s strongest-performing AI stocks this year weighed heavily on sentiment.
Among the notable movers, SpaceX endured another volatile session after suffering a 16% decline on Monday. The stock briefly fell below its June 12 IPO price of $150 during early trading, wiping out all of its post-listing gains at one stage. Buyers later returned, helping the shares recover and finish the session slightly higher after gaining as much as 6% in afternoon trading.
Pressure on the sector intensified overnight in South Korea, where memory chip giants Samsung Electronics and SK Hynix both plunged more than 12%. Their declines dragged the Kospi Composite Index 10% below its record high and reinforced doubts about how much further AI-related shares can rise after a prolonged rally.
The sell-off also turned attention towards Micron Technology ahead of earnings due on Wednesday. Investors are watching the results closely for signs of whether demand for memory products remains strong enough to support the sector’s recent gains. Micron shares fell more than 13% on Tuesday after reaching a record closing high the previous day.
The sharp moves in South Korean chip stocks have also reignited debate around leveraged exchange-traded funds, a market segment that has expanded rapidly as retail investors sought amplified exposure to AI shares. While few analysts attribute the broader sell-off directly to the funds, some increasingly view them as a mechanism that can magnify market moves once momentum changes direction.
Leveraged ETFs now hold more than $290 billion in assets globally, including over $45 billion in Asia and more than $220 billion in the United States. According to Barclays Equities Tactical Strategies, US leveraged ETF rebalancing activity has averaged around $20 billion per day over the last ten sessions, roughly four times the one-year average. Nomura estimates the products generate approximately $9 billion of rebalancing demand for every 1% move in the wider market.
The products have become large enough that market participants now monitor their flows alongside other systematic trading strategies during periods of heightened volatility. In South Korea, assets held by 16 leveraged ETFs linked to major chipmakers have grown from $3 billion at launch in May to more than $9 billion.
Away from equities, oil prices fell after signs of progress emerged in ongoing US-Iran peace and nuclear negotiations. Brent and WTI crude futures both moved lower after the United States issued a 60-day waiver on oil sanctions against Iran, while satellite data showed an increase in vessel traffic through the Strait of Hormuz.
