The Nasdaq and the S&P 500 closed at more than one-week lows on Tuesday, dragged down by sharp losses in semiconductor stocks as investors scrutinized growing debt-funded AI spending and braced ‌for a ⁠more hawkish ⁠U.S. Federal Reserve. The Dow ended slightly lower.

The Philadelphia SE Semiconductor index and the S&P 500 information tech sector index both fell.

Nvidia and Alphabet slid while chipmakers Intel, Marvell Technology and Advanced Micro Devices also fell.

“Some of the news lately about AI raises questions about all the spending that’s being done and the capex and ramping of the capacity for semiconductors,” said Thomas Martin, senior portfolio manager at Globalt. Concerns over hyperscalers’ debt-funded ⁠AI spending ‌have contributed to the selloff. Elon Musk’s SpaceX, which debuted this month, has joined a list of megacaps tapping the bond market to raise capital.

Shares ⁠of SpaceX rose, following losses in the last three sessions.

Memory chipmakers Micron Technology and SanDisk , among the best performers on the S&P 500 this year, fell.
Micron’s earnings results on Wednesday could offer clues on the outlook for the memory and AI chip sector after a searing rally this year. According to preliminary data, the S&P 500 lost 108.42 points, or 1.45%, to end at 7,364.37 points, while the Nasdaq Composite lost 578.76 points, or 2.21%, to 25,587.84. ‌The Dow Jones Industrial Average fell 44.67 points, or 0.09%, to 51,665.32.

The CBOE Volatility Index, Wall Street’s fear gauge, hit an over-one-week high.

Traders are increasingly betting on a second interest ⁠rate hike by the Fed by December, according to LSEG data, compared to expectations of just one 25-basis-point hike two weeks ago, as investors price in hawkish monetary policy under new Chair Kevin Warsh.

Personal Consumption Expenditures Price Index data, the Fed’s preferred inflation gauge, is expected on Thursday. Investors are watching developments in the Middle East after the U.S. waived sanctions on Iran for 60 days following the first round of talks under a nascent peace deal.