US tech stocks declined over the past two days, with the Nasdaq Composite falling 2.2%, its steepest two-day drop since August 1.

The semiconductor index was down 1.4%, while the S&P 500’s information technology sector slid 1% on Wednesday.

Analysts cited a mix of factors, including concerns over AI’s future, potential government intervention in chip firms through the CHIPS Act, and profit-taking after strong gains earlier in the year.

Recent studies and comments from industry leaders have also raised doubts about the sustainability of the AI boom.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ Government equity stakes in private companies signal unprecedented intervention

The current tech selloff reflects deeper concerns about government involvement in private enterprise, particularly through the CHIPS Act implementation.

The U.S. government is considering converting Intel’s $10.4 billion in CHIPS Act grants into a 10% equity stake, which would make the government Intel’s largest shareholder 1.

This represents a significant departure from traditional grant structures and has created uncertainty among investors about potential political interference in corporate decision-making.

The CHIPS Act, signed in August 2022, authorized $280 billion to boost U.S. semiconductor manufacturing, including $39 billion in direct subsidies for domestic chip production 2.

However, the prospect of government ownership stakes introduces questions about how companies will balance profit incentives with national security priorities, contributing to the volatility we’re seeing in semiconductor stocks.

2️⃣ Massive investment yields modest production gains in semiconductor reshoring

The scale of CHIPS Act investment highlights the enormous challenge of reshoring critical manufacturing capabilities.

Despite attracting nearly $450 billion in private capital across over 90 semiconductor projects in 22 states, the U.S. share of global chip production is projected to increase only modestly from 10% to 14% by 2032 3.

This relatively small gain after such substantial investment demonstrates why markets are questioning the pace and efficiency of AI-related capital spending, as mentioned in the current selloff.

The disconnect between investment scale and production outcomes reflects structural challenges including higher U.S. labor costs and regulatory hurdles, with construction costs for new semiconductor facilities running 20% higher in the U.S. than in Taiwan or South Korea 3.

These realities help explain investor skepticism about whether current AI infrastructure spending will generate proportional returns.

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