Greed turns to fear quickly when it comes to AI stocks. Not long ago, investors looked past any risk to back chips. Now, any headline can trigger a sell-off.

The Philadelphia Semiconductor Index closed Monday below its 50-day moving average for the first time since April 2025. The debut of Chinese memory-chip maker CXMT on the exchange intensified concerns about competition for US producers, especially after reports emerged that Apple has been in talks with the White House about using some Chinese chips in its products.

S&P 500, SOX, and Magnificent Seven dynamics

Fuel was poured on the sell-off by the sector's own bellwether. The Wall Street Journal reported that NVIDIA is prepared to provide roughly $250bn to help build a large OpenAI data-center. NVIDIA shares plunged by about 5%. Investors are troubled less by the deal itself than by the circular nature of the financing — NVIDIA effectively investing to enable its own customers to buy more of its chips. As a result, Apple briefly reclaimed the title of the most valuable US public company it had lost in May last year.

Not everyone is bearish. Deutsche Bank notes that the rotation out of mega-cap tech into value and quality names has already run about three-quarters of the way, judging by the sharp unwinding of overheated positioning. Morgan Stanley expects investor focus to shift to free cash flow and profitability rather than capex growth.

Reality, not bank rhetoric, will be the decisive test. More than 170 S&P 500 constituents are set to report results this week, including Microsoft, which has historically been conservative in its investment guidance. If Microsoft signals cuts to planned investment next year, the sell-off could gain fresh momentum.

Investors also face decisions from three central banks this week — the Fed, the Bank of Japan, and the Bank of England. The market currently prices in a Fed pause on Wednesday. JPMorgan says an internal positioning gauge is already flashing a buy signal for the S&P 500, and falling yields, a softer dollar, and de-escalation in the Middle East could act as tailwinds.

Nevertheless, overcrowded semiconductor positions and escalation risks around Iran have not disappeared. Quipsters have already started calling the Magnificent Seven the "Lag Seven," reflecting how poorly they have performed this year. Will the billions poured into AI pay off in this earnings season? The answer is not far off.

Technically, the daily S&P 500 chart shows the formation of a bearish engulfing bar. That pattern, together with rejection at dynamic moving-average resistance, indicates bear dominance. A confirmed break below the corrective low at 7,375 would be a technical trigger to add short positions.