Nasdaq Plunges 2.3% Amid Chip Stock Sell-Off Led by AMD
In a stark reminder of the stock market's volatility, the Nasdaq Composite index experienced a sharp 2.3% decline on Wednesday, February 4, 2026, as technology stocks bore the brunt of investor unease. The sell-off was spearheaded by semiconductor giant Advanced Micro Devices (AMD), whose shares plummeted 16% following a first-quarter forecast that fell short of analyst expectations. This downturn not only weighed heavily on the tech-heavy Nasdaq but also contributed to a broader 1% drop in the S&P 500, while the Dow Jones Industrial Average eked out a modest 0.1% gain, adding 64 points.
Tech Sector Under Siege: Key Drivers of the Decline
The technology sector, which has been a cornerstone of market gains in recent years fueled by artificial intelligence (AI) enthusiasm, showed clear signs of fatigue. AMD's disappointing guidance overshadowed CEO Lisa Su's optimistic remarks on CNBC, where she highlighted an unprecedented acceleration in AI demand. "AI is accelerating at a pace that I would not have imagined," Su stated, pointing to rising interest in the company's data center and AI chips. Despite this, investors focused on the near-term outlook, leading to a cascade of losses across the chip industry.
Broadcom, another key player in the semiconductor space, saw its shares fall 7%, while Micron Technology experienced an even steeper 11% drop. These movements reflect growing concerns over supply chain dynamics, valuation stretches, and the sustainability of the AI boom. Software stocks weren't spared either, with Oracle declining 6% and CrowdStrike extending its losses by over 2%. The iShares Expanded Tech-Software Sector ETF (IGV) was on track for its seventh consecutive day of declines, shedding 3% and hitting new 52-week lows for holdings like Intapp.
Is the AI Hype Fading? Analyst Perspectives
Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, captured the shifting sentiment succinctly: "The GenAI tech trade is no longer a one-way ride. We've transitioned from 'buy everything' to 'not everyone can win.'" Boockvar noted that while the tech rally has lost its momentum to single-handedly propel the market, investors are pivoting to other areas, including small- and mid-cap stocks, international markets, and value-oriented names within the S&P 500. This rotation was evident in the Dow's resilience, buoyed by performers like Amgen and Honeywell.
Amgen surged 7% after reporting better-than-expected fourth-quarter earnings and revenue, underscoring strength in the biotechnology sector. Honeywell added 2%, as investors sought refuge in industrial and cyclical stocks amid the tech pullback. Even within big tech, not all was doom and gloom—Microsoft bucked the trend with a 0.5% gain, providing a sliver of stability to the Magnificent Seven cohort.
Economic Backdrop: Weak Jobs Data and Shutdown Aftermath
Compounding the risk-off mood, bitcoin tumbled 5%, breaching the $73,000 support level, signaling broader appetite aversion for high-risk assets. On the economic front, ADP's January private payroll report revealed a meager addition of just 22,000 jobs—well below the 45,000 anticipated by Dow Jones economists. This tepid hiring pace, typically a precursor to the Bureau of Labor Statistics' nonfarm payrolls data, arrives amid lingering effects from a brief partial government shutdown that began on Saturday and ended Tuesday when President Donald Trump signed a funding bill.
The shutdown's resolution provided some relief, but its disruptions likely contributed to the subdued jobs figures. Investors are now bracing for upcoming corporate earnings, with Alphabet set to report after the bell on Wednesday. As a key Magnificent Seven member, Alphabet's results could either exacerbate the tech rout or signal a potential bottom. Amazon follows suit on Thursday, where scrutiny will fall on its cloud computing arm AWS and e-commerce resilience.
Tuesday's Momentum and Broader Market Trends
The previous session set the tone for Wednesday's action, with major indices selling off as capital flowed from growth stocks to cyclicals. Nvidia and Microsoft each lost nearly 3%, while Broadcom, Oracle, and Micron closed in the red. The tech sector was the S&P 500's weakest performer, down over 2%, as Walmart and similar defensive plays attracted inflows. This rotation highlights a maturing market narrative: after years of tech dominance, diversification is becoming the new normal.
Outlook: Navigating Volatility in 2026
Looking ahead, the Nasdaq's trajectory hinges on several factors. First, the sustainability of AI-driven demand remains pivotal—while Su's comments suggest long-term tailwinds, short-term execution risks could prolong the pressure. Second, macroeconomic indicators like the upcoming jobs report (delayed by the shutdown) will influence Federal Reserve rate cut expectations, potentially supporting or hindering risk assets.
Moreover, with earnings season in full swing, disappointments from tech bellwethers could accelerate the shift away from high-valuation growth stocks. Yet, opportunities abound in undervalued sectors; the Dow's outperformance illustrates how value rotation can cushion broader indices. For investors, this environment demands selectivity—focusing on companies with robust fundamentals rather than chasing hype.
In summary, Wednesday's 2.3% Nasdaq drop marks a pivotal moment in the market's evolution. As the GenAI trade matures, the index's future will depend on balanced growth across sectors, not just tech's outsized influence. With Alphabet and Amazon reports looming, the coming days promise continued drama on Wall Street.
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