Chip Stocks Plunge as the Market Asks Whether Cheap Valuations Are a Trap
U.S. stocks fell sharply on Thursday, erasing the previous day’s post-election rally in a single session. The Nasdaq fell more than 5 percent at one point, and the Dow Jones Industrial Average lost more than 1,600 points. Chip stocks were at the center of the selloff.
As of early Thursday afternoon, the Dow was down 2.92 percent at 51,799.79, the S&P 500 down 3.61 percent at 7,410.88, and the Nasdaq down 4.61 percent at 24,549.53, according to Yahoo Finance. All three indexes were headed for their worst day since the tariff announcement in April 2025.
The most dramatic moves were in memory chip stocks. Micron fell 14 percent to $682.65. Its drop over the past month reached 36 percent. Yet Micron’s forward price-to-earnings ratio, which compares the share price with expected earnings over the next 12 months, had fallen to 4.8 times. SanDisk fell 19 percent on the day and 29 percent over the past month. Its forward price-to-earnings ratio stood at about 4.9 times. The S&P 500 as a whole trades at about 18.5 times expected earnings.
Weak demand is not the cause. Memory chips are in short supply, and Wall Street still expects Micron’s earnings to grow by at least 17 percent in its next fiscal year. SanDisk’s business is strong, and the Street’s profit outlook for the company remains bullish.
The question is what happens to orders. With Democrats taking control of the House and Senate and winning key governor races, investors worry that data center construction will slow. Fewer data centers would mean fewer orders for Micron and SanDisk and a reassessment of their longer-term earnings power. Yahoo Finance said both stocks could be a “value trap” until the dust settles on the AI trade.
Other chip stocks fell with them. Advanced Micro Devices fell 15 percent. Chief Executive Lisa Su said demand for AI chips was not slowing and called the market “a little bit short-sighted.” Nvidia fell 7 to 9 percent, and Broadcom, Intel, Taiwan Semiconductor Manufacturing and SK Hynix also dropped sharply. The PHLX Semiconductor Index fell as much as 11 percent during the session, its worst drop since March 2020.
Software and data center names were no exception. Palantir and CrowdStrike each fell more than 10 percent, and Cloudflare, Rubrik, Okta, Palo Alto Networks and Oracle also dropped sharply. Neocloud companies that rent out computing power, including CoreWeave and Nebius, fell by double-digit percentages.
Tesla and SpaceX each fell more than 9 percent. Dan Ives, an analyst at Wedbush, said a merger of the two companies now faced a tougher regulatory road.
Fear spread across the market. The Cboe Volatility Index, known as Wall Street’s fear gauge, surged more than 65 percent at one point to 27.45, its biggest one-day jump in more than two years. The Nasdaq fell below its 200-day moving average, and the Nasdaq-100 had already confirmed a correction on Monday. Chip stocks were headed for their worst day after a midterm election since 1896. The S&P 500 shed more than $2 trillion in market value by midmorning.
Other markets shook as well. Bitcoin briefly fell below $76,000. The crypto industry’s Clarity Act looked unlikely to advance before the current session of Congress ends. AppLovin moved the other way, surging 23 to 30 percent after beating third-quarter estimates, with revenue of $2.18 billion and earnings per share of $4.30, both above expectations.
The Bank of England raised its benchmark rate by a quarter point to 4 percent in an 8-to-1 vote, its first increase since 2023. It expects inflation to rise to 5 percent by mid-2027.
U.S. employers announced 43,994 layoff plans in October, the fewest since 2023 and down 71 percent from a year earlier. The figures came a day before the October jobs report. Oil rose on uncertainty over a possible deal with Iran. Brent crude traded around $97 a barrel, and West Texas Intermediate around $90. Torsten Sløk, chief economist at Apollo, said S&P 500 earnings were up nearly 40 percent from a year earlier.
Investors now watch the October jobs report on Friday, the consumer price index on November 10, Nvidia earnings on November 17 and the Federal Open Market Committee meeting in December.