Why are big chip stocks under pressure? SK Hynix, AMD, Intel, Nvidia fall up to 6.5%; is the AI rally losing steam?

SK Hynix, Micron Technology, Intel and Advanced Micro Devices (AMD) were among the chip stocks trading with losses of up to 6.5% in Thursday's trade, September 10, as investors appeared to book profits in these counters following their recent run-up amid escalating tensions in West Asia.

Following a three-day winning streak, SK Hynix shares reversed their gains, dropping 6% to hit the day's low of $187. In the previous session, the stock had climbed to a fresh peak of $191, marking a new milestone since its ADR debut in July.

Similarly, Micron Technology shares slipped 4.20% to $982, while Advanced Micro Devices (AMD) fell 3% to $504 and was on track to snap its three-day winning streak.

Intel was also on track to end its five-day losing streak, with the stock down 6.5% at $99.34, while Nvidia remained lower for the third day in a row, slipping another 2.6%. SanDisk shares also declined 4% in Thursday's trade. Despite the fall, the memory-chip maker remains 8.5% higher so far in September.

Why are chip stocks under pressure?

The recent weakness in chip stocks comes despite a broadly favourable backdrop for the technology sector, as escalating attacks between the US and Iran in the Middle East have added another layer of concern over energy supplies. Oil markets have already remained under strain over the past six months, with Brent crude rising above $105 a barrel in today's trade.

Adding to the pressure, the latest US Producer Price Index (PPI) data for August came in hotter than expected, indicating that the prices businesses pay for goods and services before they reach consumers are rising. The data has further strengthened expectations of a Federal Reserve rate hike.

The Producer Price Index rose 0.4% in August from the previous month and 5.4% from a year earlier, according to data released by the Bureau of Labor Statistics on Thursday. Excluding food and energy, the gauge advanced 0.2% last month and 4.6% from a year earlier.

The hotter-than-expected reading comes ahead of Friday's Consumer Price Index (CPI) report, which is expected to show an acceleration in August from the previous month, partly due to higher gasoline costs. Excluding the volatile food and energy components, core CPI is projected to have risen at a more moderate pace.

What could the Fed's next rate decision mean for tech stocks?

Against this backdrop, investors are now turning their attention to the Federal Reserve's September 15-16 meeting. Some Fed officials have signalled that the rate decision could depend on what this week's inflation reports reveal.

Meanwhile, the European Central Bank responded to rising price pressures by raising its key deposit rate by 25 basis points to 2.5% from 2.25%, adding to the broader focus on how central banks are responding to persistent inflation.

Disclaimer: We advise investors to check with certified experts before making any investment decisions.