Dow ends lower as AI selloff drags Nasdaq, defensive stocks gain

The Dow Jones Industrial Average and the broader US stock market closed lower on Friday as investors continued rotating out of technology and semiconductor stocks while shifting into more defensive sectors such as healthcare, consumer staples, and utilities.

The S&P 500 slipped 0.27% to close at 7,337.68, while the Nasdaq Composite fell 0.48% to 25,236.88.

The Dow Jones Industrial Average lost 125.78 points, or 0.23%, to end at 51,794.84.

Despite Friday's decline, the Dow posted a weekly gain of about 0.62%. The S&P 500 had a loss of more than 1% for the week, while the Nasdaq fell by 4%.

Chip stocks extend decline amid AI spending concerns

Semiconductor stocks remained under pressure as investors questioned whether the enormous investments being made in artificial intelligence infrastructure will generate returns quickly enough.

The PHLX Semiconductor Index tumbled, extending recent volatility across AI-related chipmakers that have powered much of Wall Street's gains in recent years.

Micron Technology fell 4%, Advanced Micro Devices declined 2%, and Intel dropped more than 3%.

Sentiment was also hurt by a New York Times report that OpenAI is considering delaying its initial public offering until next year, partly due to SpaceX's weak post-debut performance and broader volatility across AI-related stocks.

SpaceX stock closed 0.15% higher, after surging earlier on improved sentiment due to inclusion to the Russell 1000 index.

Defensive sectors outperform as healthcare rallies

As technology shares weakened, investors rotated into more defensive areas of the market.

The S&P 500 information technology sector fell 1%, while healthcare stocks continued to attract buying interest after outperforming in the previous session.

Shares of Eli Lilly surged 7%, Johnson & Johnson gained more than 3%, and AbbVie rose more than 1%.

Consumer staples advanced more than 1%, while financials and utilities gained 0.8% and 0.4%, respectively.

Moderna also rallied sharply, climbing to its highest level since 2024 after hosting an investor event that showcased its development pipeline.

Inflation concerns and global weakness shape sentiment

Fresh inflation concerns also influenced market sentiment.

Data released on Thursday showed US inflation climbed above 4% in May, driven by higher energy prices linked to the conflict in the Middle East.

Although oil prices retreated as geopolitical tensions eased, analysts said Apple's recent price increases highlighted lingering inflation pressures.

Investors also weighed better-than-expected consumer sentiment data and an improved inflation outlook, even as Minneapolis Federal Reserve President Neel Kashkari said he expects one interest rate increase this year because of rising inflation pressures.

Interest-rate concerns persisted, with traders pricing in one 25-basis-point hike and a nearly 27% probability of another increase before year-end, according to LSEG data.

The technology selloff also spread globally.

SoftBank Group plunged more than 12%, while South Korea's Kospi and Kosdaq indexes dropped 5.81% and 4.10%, respectively, as investors reassessed the outlook for AI-related spending and technology valuations.