[New York Market Briefing] Alibaba rattles New York market with in-house AI chip development… Nvidia plunges 3%

News that China's Alibaba is testing next-generation artificial intelligence (AI) chips it made in-house rattled U.S. tech stocks. Concerns that AI chip demand could shift from U.S. firms to Chinese companies sharply cooled investor sentiment.

On the 29th (local time) at the New York Stock Exchange, the Dow fell 0.20% to finish at 45,544.88. The S&P 500 dropped 0.64% to 6,460.26, and the Nasdaq plunged 1.15% to 21,455.55.

Alibaba had relied on TSMC for its existing AI processors but has now moved up to in-house chip production. Other Chinese tech firms are also developing products to replace Nvidia's H20 chips, spreading expectations of reduced demand for U.S. tech firms. In particular, the Chinese government's requirement that more than half of chips for public data centers be supplied domestically also heightened investor concern.

On the day, Nvidia and Broadcom shares fell more than 3%, and TSMC, ASML, AMD, and Micron Technology also slipped around 3%. The Philadelphia Semiconductor Index fell more than 3%, with all but one of its 30 components down. Marvell Technology plunged 18% on the back of a disappointing earnings outlook. On the other hand, Alibaba's American Depositary Receipt (ADR) surged 13%.

Despite market jitters, some remained optimistic. "Volatility could come in September and October, but it could rather be a buying opportunity," said Chris Zaccarelli, CIO of Northlight Asset Management. Indeed, over the past 10 years the S&P 500's average September return of -1.94% has been the weakest.

The July personal consumption expenditures (PCE) price index matched expectations. The core PCE price index rose 0.3% month-on-month and 2.9% year-on-year, the highest in five months. Analysts say sticky inflation continues to be a burden.

By sector, consumer discretionary and technology stocks fell more than 1%, and among large tech names only Alphabet rose, reaching an all-time high again. Dell Technologies plunged 9% on a weak outlook.

The CME FedWatch Tool reflected an 86.9% probability of a 0.25% Fed rate cut in September. The volatility index (VIX) rose more than 6% to 15.36.

Shin Hyunbo Hankyung.com reporter greaterfool@hankyung.com