The parabolic AI trade has sent many chip stocks to the moon, as investors have bet that hyperscalers such as Google, Microsoft, Amazon, and Meta will continue to aggressively expand AI capital expenditures. However, the rally now faces significant headwinds, with valuation and revenue sustainability concerns resurfacing amid rising competition from cheaper Chinese models.
The major stock benchmarks recorded weekly losses on Friday, July 17, with the S&P 500 down 1.6%, the NASDAQ down 2.9%, and the Dow falling 0.9% over the week. Chip stocks dragged down the market, with the VanEck Semiconductor ETF (SMH) posting its third weekly decline over the past month. SMH has fallen roughly 9% over the said period.
The sector further came under investor radar when Chinese startup Moonshot AI launched its latest model, claiming it closes the gap with some of the leading models from US AI developers.
Angelo Kourkafas, senior investment strategist at Edward Jones, told CNBC, "The latest development is competition from open-source models in China, which are reportedly rivaling the performance of leading offerings from Anthropic and OpenAI, raising fresh concerns about the heavy pace of technology spending."
Considering these concerns, UBS estimates the hyperscalers' capex to slow down to 25% next year and 6% in 2028 after rising sharply to 76% in 2026.
Intel Corporation (NASDAQ:INTC) sits in the middle of this turbulence, but with a twist: shares are still up more than 311% over the trailing 12 months even after a roughly 30% pullback from June's highs. The question for investors isn't whether Intel can survive an AI-spending slowdown — it's whether the company's political backing, a reported preliminary manufacturing agreement with Apple, and the upcoming earnings report are enough to keep a turnaround story alive when the broader chip trade is losing conviction.
In August 2025, the White House took on fixing Intel as its pet project and converted $9 billion in federal grants into a 10% ownership stake. The Trump Administration even convinced tech giants, including Apple, Nvidia, and SpaceX, to work with the chipmaker. Later, Intel reportedly reached a preliminary agreement to manufacture some Apple-designed chips.
As per Intel, Washington's stake in the company is structured as passive ownership with no board seat, and the government must vote with Intel's board on shareholder matters, with unspecified "limited exceptions." The deal also includes a five-year warrant at $20/share for an additional 5% stake, which the government can exercise only if Intel loses control of its foundry business.
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