Chip Stocks Stumble as Meta's AI Chip Deal Threatens Nvidia's Dominance

Equity markets faced headwinds today as semiconductor stocks retreated sharply, with the selloff in chip names dragging major indexes lower. The S&P 500 fell -0.35%, while the Nasdaq 100 sank -1.04%, though the Dow Jones managed a modest +0.26% gain. Futures contracts reflected similar weakness, with December S&P 500 E-mini futures down -0.40% and Nasdaq E-mini futures sliding -1.09%.

The primary culprit behind today’s tech weakness emerged when The Information broke that Meta Platforms is in advanced negotiations to purchase billions in Google’s tensor processing units (TPUs) for 2027 data center deployments. This development signals that Google’s artificial intelligence accelerator technology is gaining traction as a legitimate challenger to Nvidia’s entrenched position in AI semiconductors. Nvidia plummeted more than -5%, leading the entire chip sector lower and intensifying the sellback from Monday’s pronounced rally.

The semiconductor weakness was broad-based, with Advanced Micro Devices sliding over -7% to rank among the largest S&P 500 losers. ARM Holdings, Analog Devices, Micron Technology, Texas Instruments, Marvell Technology, Intel, and Microchip Technology all retreated by -1% to -2%, extending pressure throughout the chip ecosystem. Alphabet, Google’s parent company, bucked the trend by climbing more than +2%, as investor sentiment turned positive on the validation of its AI chip strategy.

Economic Data Offers Market Reprieve

Offsetting some of the tech weakness, softer-than-anticipated US economic data provided support to risk assets and shifted expectations toward monetary easing. September retail sales climbed just +0.2% month-over-month, disappointing expectations for +0.4%. Excluding automobiles, the retail sales measure matched forecasts at +0.3%. Producer price inflation showed mixed results: headline September PPI reached +2.7% year-over-year, exceeding the +2.6% consensus, but the core measure arrived at +2.6%, missing the +2.7% projection.

The housing sector displayed cooling momentum as the Case-Shiller composite-20 home price index rose +1.36% year-over-year, trailing expectations of +1.40% and marking the slowest pace in more than two years. Private sector payrolls contracted by an average of -13,500 weekly during the four-week period ending November 8, according to ADP’s latest employment gauge.

This softer economic backdrop reinforced market expectations for a Federal Reserve rate reduction at the December 9-10 policy meeting, with probability estimates climbing to 80%. The data underscore mounting concerns about labor market softness and moderating price pressures, both factors that strengthen the case for policy accommodation.

Treasury Market Rallies on Rate Cut Prospects

Treasury yields declined substantially in response to the dovish economic signals. The 10-year note yield descended -1.5 basis points to 4.019%, trading at its lowest point in three-and-a-half weeks. December 10-year futures rose 4 ticks, reflecting broad-based demand for fixed income. The 10-year breakeven inflation rate tumbled to 2.212%, a 7.25-month low, suggesting softening long-term inflation expectations among market participants.

European government bonds participated in the global rally, with German 10-year bund yields declining -1.3 basis points to 2.679% and UK gilts falling -3.3 basis points to 4.504%. In contrast, currency markets are pricing only a 2% probability of a European Central Bank rate cut at its December 18 meeting, reflecting differing monetary policy trajectories across major economies.

Treasury supply considerations will add complexity, with the government auctioning $28 billion in two-year floating-rate notes and $70 billion in five-year notes today, part of a broader $211 billion auction slate this week.

Crypto Stocks Track Bitcoin Weakness

Cryptocurrency-exposed equities extended losses as digital asset prices retreated. Bitcoin traded down more than -2%, prompting corresponding weakness across the crypto equity complex. Coinbase Global stumbled more than -4%, while Microstrategy and Mara Holdings declined over -3% each. Riot Platforms fell more than -2%, and Galaxy Digital descended past -1%.

Housing Beneficiaries Gain From Lower Yields

Home builders and construction suppliers rallied following the decline in mortgage-rate proxies. The drop in 10-year Treasury yields to a 3.5-week floor of 4.00% provided tailwinds for residential real estate sentiment. Mohawk Industries, DR Horton, Builders FirstSource, and Toll Brothers each climbed more than +2%, with Lennar and PulteGroup advancing over +1% as demand expectations for housing improved.

Individual Stock Highlights

Notable Decliners: Burlington Stores fell more than -11% after Q3 revenue of $2.71 billion missed consensus forecasts of $2.72 billion. Semtech retreated over -10% following Q4 gross margin guidance of 51.2%, below the prior quarter’s 53% level. Coherent Corp slipped more than -5% after Bain Capital reduced its ownership stake via a $1.14 billion block transaction. Dick’s Sporting Goods descended more than -2% on Q3 gross margin of 33.1%, trailing expectations of 35.8%. Estee Lauder fell more than -2% after a downgrade to sell from a Rothschild & Co. analyst, with a $70 price target.

Notable Gainers: Symbotic soared over +38% following Q4 revenue of $618.5 million, exceeding consensus of $605.1 million, combined with Q1 guidance of $610-630 million, substantially above expectations. Kohl’s surged over +32% after Q3 net sales reached $3.41 billion versus $3.33 billion consensus, and management raised full-year comparable sales guidance to a decline of -2.5% to -3.0% from prior guidance of -4% to -5%. Amentum Holdings climbed over +21% on Q4 pro forma revenue of $3.93 billion, outpacing consensus of $3.61 billion. Zoom Communications gained over +9% following Q3 revenue of $1.23 billion above the $1.21 billion forecast, plus an upward revision of 2026 guidance to $4.85-4.86 billion from $4.83-4.84 billion. Keysight Technologies led S&P 500 gainers with an advance exceeding +8%, buoyed by Q4 revenue of $1.42 billion above $1.38 billion expectations and Q1 guidance of $1.53-1.55 billion, well ahead of consensus. Best Buy climbed more than +4% on Q3 revenue of $9.67 billion topping $9.58 billion consensus, alongside raised 2026 guidance to $41.65-41.95 billion.

Week Ahead

The economic calendar intensifies this week with the Conference Board’s November consumer confidence index expected to decline by -1.3 points to 93.3. Tuesday brings October pending home sales data (expected +0.1% month-over-month), while Wednesday features weekly initial jobless claims (expected +6,000 to 226,000), September capital goods orders excluding defense and aircraft (+0.3% m/m), November Chicago PMI (+0.2 to 44.0), and the Federal Reserve’s Beige Book release. Q3 earnings season nears completion with 466 of the S&P 500’s constituents having reported; Bloomberg Intelligence data show 83% beat forecasts on pace for the strongest quarter since 2021, with overall earnings rising +14.6% against expectations of +7.2%.