AI chip stocks wiped out $1 trillion in a single day: the nonfarm payrolls report was just an excuse—crowded positioning was the real culprit

The drop on June 5 was genuinely alarming. The Nasdaq fell 4% in a single day, while the SOXX ETF—which tracks semiconductor stocks—plunged more than 10%, marking its worst day since the March 2020 pandemic crash. Anyone still holding tech stocks likely felt uneasy checking their account balance at market close.

When markets reopened on Monday (June 8), they didn’t continue Friday’s downward slide. Instead, the hardest-hit chip stocks led a rebound: the SOXX semiconductor index, which had dropped 10% on Friday, surged back 5.9% in a single day, while Broadcom and NVIDIA recovered 2.8% and 1.7%, respectively, helping ease market panic.The fact that the most severely sold-off assets bounced back the hardest already suggests that the June 5 selloff may not have marked the start of a full-blown crash.。

To be honest, the VIX fear gauge jumped from around 15 to 21 on June 5, which is indeed not low; but viewed over the past year, it’s still far from extreme. The last time it truly spiked was in early March this year during the Iran conflict—when the U.S. and Israel launched military action against Iran, briefly shutting down the Strait of Hormuz, sending oil prices soaring, and pushing the VIX intraday to 35. The entire market tumbled for over a week straight, indiscriminately selling off—that was real, full-blown panic.

Before this drop, the S&P 500 had just posted nine consecutive weeks of gains, and volatility had been languishing at very low levels, with market consensus becoming overly concentrated. This correction effectively disrupted that crowded positioning. In terms of single-day decline, yes, it was indeed the steepest drop the Nasdaq has seen in the past year—but in terms of intensity, it resembled more of a sharp pullback after an extended one-sided rally: the fall was genuinely abrupt, yet hardly out of control.

This sell-off happened right before Friday’s close, conveniently giving the market two days over the weekend to figure out the most critical question: why did it drop? Only once that’s clear can investors decide whether to hold steady or take action. Without clarity, they’ll just chase moves emotionally—buying high and selling low. And chasing and cutting positions are precisely the easiest—and most error-prone—things to do in a panic. By the time you come to your senses, you’ve often already sold your best holdings at the bottom.

From the perspective of mainstream financial media, the cause of this plunge is relatively straightforward: the nonfarm payrolls report. On June 5, U.S. employment data came in much stronger than expected, sparking fears that the Federal Reserve might hike rates again. Tech stocks led the broader market lower. This narrative makes sense—when rate expectations rise, tech stocks, which have the longest duration and are most sensitive to liquidity, are naturally the first to get hit. After all, on that day alone, the implied probability of a rate hike by year-end jumped from roughly 50% to over 70%.

But while interest rates can explain the broad tech weakness, they don’t account for what was truly unusual in the June 5 market action: the hardest-hit weren’t just generally high-valuation tech names, but specifically AI chips—a narrow segment. The semiconductor sector plunged more than 10% in a single day, two to three times worse than the broader tech selloff. Moreover, this chip weakness actually began two days before the jobs report: after market close on June 3, Broadcom’s AI chip guidance disappointed, and chip stocks already crashed on June 4.

So the nonfarm payrolls data was at most a spark; the real stampede came from overcrowded positions in the AI supply chain.Another interesting signal: on June 5, a batch of capital calmly rotated out of tech and into defensive sectors—an unusually composed move. In a true crash, no one relocates funds so calmly. This suggests the selloff likely reflects something deeper, worth examining by breaking down the market action piece by piece.

01 Not a crash—just a breather.

Breaking down the June 5 market action reveals that the drop was far from uniform.

Consider this direct comparison: among the same 500 stocks in the S&P 500, using equal weighting, the index fell just 1.4% that day; but using market-cap weighting, the drop widened to 2.6%—nearly double. Such a large gap between the two methods can only mean that almost all the pain was concentrated in the largest, most heavily weighted stocks—namely, the mega-cap tech names.

Include other indices as well: the more blue-chip-heavy Dow Jones Industrial Average fell only 1.4%, the highly sensitive small-cap Russell 2000 dropped 3.5%, and the tech-heavy Nasdaq plunged 4.2%. The more growth-oriented and crowded a segment was, the deeper it fell; conversely, the more evenly distributed and unremarkable corners remained relatively unscathed. In a truly indiscriminate, broad-based panic, everything should sink together without such stark divergence. This orderly step-down pattern shows that selling pressure was precisely targeted at that small cluster of large, overcrowded stocks.

Looking at the timeline, the nonfarm payrolls data was released at 8:30 a.m., an hour before the market opened. Yet, between 8:30 and 9:00 a.m.—a half-hour window—the broad-market ETF SPY barely moved, fluctuating by only about 0.1% to 0.2%. The real plunge unfolded only after the 9:30 a.m. open. This isn’t ironclad proof—after all, pre-market trading is typically thin—but it does suggest that once the data landed, the market didn’t immediately flee in panic.

What’s truly worth pondering isn’t which stocks were sold, but what kind of stocks they were. Take the SOXX semiconductor index—the epicenter of this shakeout. Even including its more than 10% drop on June 5, it’s still up nearly 80% year-to-date. Among the hardest hit, Marvell tumbled 16% in a single day, Micron fell 13%, and sector leader NVIDIA dropped just over 6%, pushing its market cap below the $5 trillion mark.The stocks hit hardest were precisely those that had surged the most over the past six to twelve months and carried the thickest paper gains.。

Moreover, this wave of selling wasn’t confined to the U.S.—in fact, the timing ran in reverse: Asia sold off first, Europe followed, and only then did the U.S. join in. Samsung, SK Hynix, and ASML were all caught in the downdraft. Crucially, there was a clear time lag: by the time the U.S. nonfarm payrolls report came out at 8:30 a.m. Eastern, South Korea had already closed for the day, and its losses were locked in. The selloff had already spread across Asia before the U.S. jobs data was even released. A U.S. report that didn’t even coincide with Asian chip stocks’ decline can hardly be the root cause of this global drop. What truly links them is the common label they all share: AI.

The more crowded a trade becomes—and the larger the unrealized gains—the more likely investors are to think ‘take profits’ once prices reach a certain level, especially when the index has just hit a new high and almost everyone is sitting on gains. It doesn’t take a major negative catalyst to trigger a sell-off; all it takes is one investor starting to cash out. Others crowded into the same trade, fearing they’ll be left behind, follow suit—and a stampede ensues.

Money that’s sold must go somewhere—and the capital flows on June 5 tell a critical story. First, look at the defensive sectors that rose against the tide: consumer staples gained 1.7%, making it the strongest segment that day. Everyday names like Procter & Gamble and Coca-Cola climbed 3% to 5%, and healthcare also closed higher. Zooming out further, more than half of S&P 500 stocks actually rose on that day. The index’s decline was driven purely by the sheer weight of a few mega-cap tech giants dragging it down.

But the real key lies elsewhere: money exiting AI and semiconductors didn’t chase a new market leader. Typically, small-caps and cyclicals—which often rally alongside tech—failed to step up this time either; the Russell 2000 still fell 3.5%. If investors were truly abandoning AI to rotate into a new leadership group, we’d expect to see a clear new leader emerge. Instead, the market simply trimmed exposure in the segment that had risen fastest and become most overcrowded.

ThereforeRather than signaling a top or a sector rotation, June 5 was better understood as a pause for breath—a moment of fatigue after the AI bull run had sprinted too far, too fast.From an earnings perspective, AI remains the market’s strongest fundamental driver: profit growth expectations for the 'Magnificent Seven' next year still exceed those of the rest of the S&P 500 by more than twofold. However, after this pullback, market concentration and divergence are likely to intensify further—and consensus bullishness on AI could reach unprecedented levels.

02 Can it really sustain this burn?

Last weekend, AI-related rumors flooded the market. Jensen Huang’s meetings and new deals with Samsung and SK Hynix in Korea reignited enthusiasm among many investors. Yet all this money poured into AI ultimately amounts to a bet on whether this business can keep burning cash indefinitely. To sustain that burn, however, requires answering critical questions: how much money must be spent, who will foot the bill, and can they afford it? During the steepest rally, almost no one seriously considered these issues. The recent drop hasn’t undermined the overall AI bet—but for the first time, it has forced this previously sidestepped question into sharp focus.

From a macroeconomic perspective, a significant portion of U.S. economic growth over the past two years has been self-generated by AI investment. According to official U.S. data, in Q1 2026, annualized GDP grew by 2%, with AI-related investments—specifically in computer equipment and software—contributing roughly 1.1 percentage points. That’s nearly on par with the entire contribution from consumer spending, even though consumption is about twenty times larger in scale. In plain terms, without this wave of AI investment, Q1 growth would have been halved—from 2% down to around 1%.

On the equity side, Goldman Sachs estimates that roughly half of the S&P 500’s earnings growth in 2026 hinges on AI-related spending, leaving very little room for error for the remaining few hundred companies.Strip out AI, and the U.S. economy won’t collapse overnight—but forget about sustaining current growth rates.。

The same dynamic applies globally: it’s no secret how much Korean and Japanese stock markets have benefited from the AI semiconductor boom. Back in China’s A-share market, if you shift focus from price movements to fundamentals, the divergence is just as stark. In Q1 2026, aggregate net profit for all A-share companies rose only 6.6% year-over-year. But sectors tightly linked to AI and computing power—such as semiconductors and software—posted net profit growth of 100% to over 200%. Within optical modules and memory segments, numerous companies reported both revenue and profits doubling. Globally, listed firms now clearly follow an 80/20—or even 90/10—split: businesses tied to carbon-based life (i.e., traditional sectors) are mired in deflation, while those linked to silicon-based systems (i.e., tech/AI) are charging ahead.

It’s precisely at this moment that several developments have converged, making this AI-driven business model appear riskier than before. These are forward-looking warning signs—not direct causes of the June 5 sell-off. First, Broadcom released a record-breaking earnings report after market close on June 3, with AI chip revenue surging 143% year-over-year. Yet its CEO declined to raise the full-year outlook as the market had hoped, keeping the $56 billion forecast unchanged and offering next-quarter guidance slightly below expectations. That small gap triggered a 12.6% single-day plunge in its stock—the worst in over a year.

Then there’s Google. Reports indicate that even this famously cash-rich company plans to raise around $85 billion in the market to invest in AI data centers. To be fair, that sum isn’t materially negative for a company of Google’s size—but with interest rates stubbornly refusing to fall and the 10-year Treasury yield climbing back above 4.5%, the cost of financing such infrastructure has risen accordingly.

There’s also a quieter—but more concerning—signal: this momentum shows no sign of slowing; if anything, it’s accelerating. Major companies plan to spend over 30% more on AI in 2026 than they did last year. And that’s exactly the problem: both the economy and the stock market are becoming increasingly reliant on this single engine of growth. Yet no matter how massive the investment, nothing can grow forever without eventually plateauing or declining.Sooner or later, this acceleration will turn into deceleration—no one knows precisely when. But once that day arrives, the very force currently driving half of today’s growth will flip and become a drag pulling things down.。

But then again, all these are still just distant question marks—not cracks that have already opened up. Broadcom’s AI revenue continues to rise, and Google is still doubling down; this business isn’t stopping anytime soon. So with market consensus now this strong, what really matters isn’t guessing when it will break, nor chasing every move based on a single non-farm payroll report.

What got sold off on June 5 wasn’t driven by any company’s fundamentals—it was positions that had risen too quickly.Rather than panicking and selling quality holdings at rock-bottom prices, you’d be better off redirecting the energy spent obsessing over employment data toward closely tracking upstream spending along the AI supply chain and managing your already profitable positions.。

03 Conclusion

For well-known reasons, directly trading U.S. stocks from mainland China has become significantly harder than before—but that doesn’t mean U.S. equities and the markets tightly correlated with them are no longer worth monitoring or studying.

So far this year, the A-shares and H-shares accessible to mainland investors have increasingly resembled U.S. stocks. The very companies delivering solid earnings and the strongest growth follow the same playbook as their U.S. counterparts. Moreover, semiconductors are inherently part of a global supply chain—every move by NVIDIA, Broadcom, and others in the U.S. market ripples directly through to A-share companies tied to AI and chips, shaking both their earnings and stock prices.

Events in the U.S. equity market have never been just about U.S. stocks alone—they continue to steer the direction of global capital markets, including China’s A-share market.

Since we can’t avoid it, we must understand it clearly. And right now, what puzzles me most about this market isn’t how much it has fallen—but the unusual calm that follows. In a market where a single-day 4% drop is met with such composure and immediately triggers bargain hunting, is this calm rooted in genuine confidence, or is it numbness after a prolonged rally?

The more everyone remains unshaken even after a pullback, could this very sense of calm itself actually be a risk?？ $CSOP SK Hynix Daily (2x) Leveraged Product (07709.HK)$$Micron Technology (MU.US)$$SanDisk (SNDK.US)$$NVIDIA (NVDA.US)$

Disclaimer: This article is intended solely for learning and communication purposes and does not constitute investment advice.

85K Views