Nasdaq slides 3% as tech rout masks broad market strength

Technology stocks tumbled Friday while the broader market showed more advancers than decliners, signaling sector rotation rather than a broad selloff.

The Nasdaq Composite fell 3% on Friday, capping a week of tech-led losses, as a cheaper Chinese AI model and concerns about OpenAI's IPO prospects triggered a rotation out of growth stocks.

"Enterprises and hyperscalers trading down to cheaper models looks more like a recalibration in willingness to pay for AI, not a deterioration in demand for AI," Morgan Stanley traders wrote in a note Thursday.

Consumer staples and healthcare were the only S&P 500 sectors to hold gains, while technology and communication services each fell more than 2%. Despite the headline losses, the advance-decline ratio on the New York Stock Exchange remained positive, with roughly 1.1 advancing stocks for every declining one — a pattern that persisted even as the Nasdaq posted its most volatile stretch in nearly two years.

The divergence suggests investors are reallocating capital rather than fleeing equities entirely, a shift that could accelerate if next week's Micron earnings confirm weakening demand for memory chips tied to AI infrastructure.

The selloff's trigger was a Thursday report that OpenAI is reconsidering its IPO timeline after SpaceX shares struggled following their own listing, combined with the launch of GLM5.2 by Hong Kong-listed Z.ai, formerly Zhipu AI. Jefferies strategist Christopher Wood called the model "almost equal to Anthropic as a competitor for the corporate market" at one-quarter the cost per token, describing the week as "another DeepSeek moment."

The cost advantage of Chinese open-source models is reshaping enterprise AI spending. Deutsche Bank's Jim Reid noted in a June 18 note that DeepSeek's V4-Pro does "much the same job at roughly 1.5% of the cost" of Anthropic's leading Claude Fable 5 model for about 90% of everyday tasks. That dynamic has fueled what traders call the "SaaSpocalypse" — a fear that AI agents could render traditional software platforms obsolete.

Salesforce fell to a 52-week low of $146.32 on June 22 after 14 consecutive losing sessions, the longest streak in the company's history. The stock has lost nearly 60% from its December 2024 all-time high of $368. The iShares Expanded Tech-Software Sector ETF declined 19% this year, even as the Nasdaq-100 climbed an equivalent amount — a stark divergence between semiconductor and software stocks.

The rotation played out against a broader cross-asset backdrop of dollar strength and falling commodities. The euro hit a one-year low against the U.S. dollar, while global oil prices settled at their lowest level since the start of the Iran war. The Cboe Volatility Index, while elevated, remained below levels typically associated with broad market stress, consistent with the interpretation that the selloff is sector-specific.

This article is for informational purposes only and does not constitute investment advice.