AI rotation overshadows strong bank earnings as chip stocks retreat

A sharp move within the artificial intelligence trade drove U.S. equities lower last week, despite an encouraging start to second-quarter earnings from major banks and softer inflation data. The S&P 500 fell nearly 1.6% for the week, while the Nasdaq lost almost 3%, according to CNBC.

The market action came as investors shifted capital out of several semiconductor and AI infrastructure names and toward large technology companies that buy and deploy AI capacity. The move drew attention away from June consumer and producer price reports that came in cooler than expected and from bank results that CNBC said showed strength in capital markets activity.

Energy prices added another variable for investors. CNBC reported that the U.S. and Iran traded airstrikes again, keeping attention on the Strait of Hormuz. West Texas Intermediate crude rose 15.5% last week to above $82 a barrel, while Brent crude gained nearly 16% to just above $88. Both benchmarks ended below their highs from the height of the conflict, as hopes for diplomacy persisted.

IBM warning hits software sentiment

IBM set off a reassessment of enterprise technology spending when it pre-announced weaker-than-expected second-quarter results on Tuesday. The stock fell 25% that day, its worst session on record, and ended the week down more than 26%, according to CNBC.

Chief Executive Arvind Krishna attributed the softness to customers directing more of their technology budgets toward cybersecurity, hardware and AI tokens, the usage units tied to many AI services. CNBC reported that this reduced spending available for traditional software and consulting work and pushed several large deals into later quarters.

Stocks seen as beneficiaries of that spending shift rose. CrowdStrike gained roughly 12% on Tuesday and Palo Alto Networks advanced about 7%, while hardware and memory names including Dell and Micron also rallied, CNBC reported. Software-as-a-service names were weaker that day, with Salesforce down 2% and ServiceNow nearly 6% lower. Salesforce recovered to finish the week up almost 4.6%, though CNBC said it remained down 35.5% for the year.

Semiconductor shares lose momentum

The rotation away from AI infrastructure began Monday after SK Hynix’s U.S. debut on July 10, CNBC reported. The South Korean memory company fell 9%, while Sandisk dropped 12%, Intel declined 6% and AMD lost 4% at the start of the week.

Positive company updates did not reverse the selling. ASML raised its full-year sales outlook for the second time this year, and Taiwan Semiconductor increased its capital spending forecast. Investors instead focused on the cost of the AI buildout and the scale of recent gains in chip stocks, according to CNBC.

The VanEck Semiconductor ETF fell nearly 9% for the week, marking its third weekly decline in four weeks. CNBC also reported that Chinese startup Moonshot AI introduced a model Friday that it said narrows the gap with leading U.S. systems.

Some capital moved into large technology companies. Alphabet rose 3% Wednesday after Warren Buffett told CNBC’s Becky Quick that he personally approved Berkshire Hathaway’s investment in the company, though the shares later fell after Bloomberg reported Google was months behind in delivering its latest Gemini AI model. Alphabet ended the week down almost 3%.

Apple climbed to record highs after receiving approval to bring Apple Intelligence to China, CNBC reported. CNBC said Apple will use Alibaba’s AI models for the features on Chinese devices. Apple briefly passed Nvidia on Friday to become the world’s most valuable company by market value. Apple, Amazon and Microsoft all finished the week higher.

Banks start earnings season strongly

Five of the six largest U.S. banks reported second-quarter results Tuesday. Goldman Sachs stood out, with CNBC citing strength in investment banking and trading. Its shares closed at a record high Tuesday and finished the week nearly 1% higher.

Wells Fargo also beat earnings and revenue expectations, according to CNBC, as Chief Executive Charlie Scharf continued to broaden the bank’s business beyond traditional lending into underwriting and merger advisory. Its shares initially fell 2.7% as investors focused on weaker net interest income, then recovered to end the week up 0.4%. Capital One, which rose more than 3% for the week, is scheduled to report after Tuesday’s close.

This story draws on original reporting from CNBC.