AI trade whipsaws as a semiconductor rout reverses on cloud earnings, leaving indices flat

The Philadelphia semiconductor index fell ~26% from its June high before Microsoft's blowout Azure quarter and a forced fund liquidation sparked an ~8% chip rally, leaving the S&P 500 up 0.96% and the Nasdaq 100 up 0.52% on the week to July 31, 2026.

Deepakshi

Kristal Research & Marketing team

31 Jul

Key takeaways — AI summary

From Monday to Wednesday the AI trade was in open liquidation — the Philadelphia semiconductor index sat ~26% below its June high, South Korea's KOSPI shed over 10% overnight, and the Nasdaq 100 fell more than 10% from its record — driven by worries over AI demand quality: a reported ~$250bn NVIDIA financing backstop for OpenAI's 10GW Ohio buildout, China mass-producing domestic DUV lithography tools, and an 80% price cut to OpenAI's GPT-5.6 'Luna'.
The tape snapped back on Thursday after CNBC reported a prominent AI fund was forced to unwind its entire public book (sold to Citadel), combined with a stronger OpenAI revenue print and Microsoft's blowout Azure quarter; semiconductors rallied ~8%, the Nasdaq 100 gained 3.3%, the memory ETF jumped 16.7%, and Microsoft rose 15.5% — its best single day in about 18 years.
Net weekly moves were nearly flat: the S&P 500 closed +0.96% at 7,519.25 and the Nasdaq 100 +0.52% at 28,274.19; a hawkish Fed hold at 3.50–3.75% with three dissents in favour of a hike steepened the curve, lifting the 10-year yield to 4.74%, while gold added 0.89% to ~$4,107 and WTI crude round-tripped to finish essentially flat.
Economic data leaned softer: Q2 GDP was revised down to a 1.5% advance rate versus 2.1% expected, core PCE cooled to 3.4%, and headline PCE prices fell 0.1% in June, even as Chair Warsh declined forward guidance and downplayed soft June CPI.
Earnings sorted winners from funders: Amazon rose ~8% as AWS accelerated to 37% and lifted 2026 capex guidance to $220bn; Meta fell 9.5% on sub-$1bn free cash flow despite 27% ad growth; Qualcomm dropped ~5% on a data-centre shortfall; and Caterpillar slid 6.9% on a downgrade tied to the AI-capex reappraisal.

Generated by Kristal AI · reviewed by the research desk

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