US stocks declined on May 16 (local time), with semiconductor stocks leading losses amid growing skepticism about artificial intelligence investment returns. The Nasdaq Composite fell 1.47% to 25,881.95, while the S&P 500 dropped 0.51% to 7533.76 and the Dow Jones Industrial Average declined 0.2% to 52,552.97. Taiwan Semiconductor Manufacturing Company's decision to raise its capital expenditure guidance from $52-56 billion to $60-64 billion triggered concerns about investment burdens outweighing profitability, despite the company reporting better-than-expected second-quarter results. Market analysts noted that US hyperscalers are expected to invest over $725 billion in AI-related infrastructure this year, raising questions about when these investments will translate into actual returns.
TSMC Raises Capital Expenditure Guidance to $60-64 Billion
TSMC reported second-quarter results that exceeded market expectations and provided solid earnings guidance, but its stock price fell 2.3%. The company raised its capital expenditure forecast from $52-56 billion to $60-64 billion to address increasing AI semiconductor demand. The market reacted more sensitively to the massive investment burden than to profitability concerns.
The VanEck Semiconductor ETF (SMH) plunged 3.7%. ARM Holdings dropped more than 5.4%, while Micron Technology and AMD (Advanced Micro Devices) fell 5.7% and 5.3% respectively. Broadcom declined 5%, and SK Hynix ADR listed on US exchanges plummeted 13.7%.
Matt Maley, chief market strategist at Miller Tabak, stated: "The fact that even a company like TSMC, which announced excellent results, saw its stock price fall shows investors' concerns. Semiconductor stocks remain the most important sector determining market direction, and meaningful cracks are appearing. If a strong and sustained rebound does not emerge, it could be a warning signal for the market."
Alphabet Delays Gemini 3.5 Pro AI Model Launch
Large technology stocks showed uniform weakness. Alphabet plunged 4.4% following reports that the launch of its next-generation AI model "Gemini 3.5 Pro" was delayed by several months. Meta Platforms, NVIDIA, and Amazon, part of the so-called "Magnificent 7" stocks, also declined in tandem.
Deteriorating Middle East conditions also weighed on risk asset sentiment. As the United States intensified military attacks on Iran, geopolitical tensions heightened. International oil prices fell slightly that day but maintained an upward trend on a weekly basis. Concerns grew that rising energy prices could restimulate inflation, potentially prompting the Federal Reserve to raise interest rates again within the year.
Jeff Schmid, president of the Federal Reserve Bank of Kansas City, stated in public remarks: "Inflation is the biggest concern," warning about the possibility of further price increases. Lorie Logan, president of the Federal Reserve Bank of Dallas, also suggested the need for additional rate hikes, saying it was difficult to see prices sustainably returning to target levels.
US Jobless Claims Fall to 208,000
Economic indicators released showed that the US economy's fundamental strength remains solid. According to the US Department of Labor, new unemployment claims last week totaled 208,000, below the market expectation of 218,000, reconfirming labor market stability.
June retail sales announced by the US Department of Commerce increased 0.2% compared to the previous month, meeting market forecasts. While the overall increase was limited due to decreased gas station sales, other retail sectors showed relatively solid consumer spending patterns.
Ellen Zentner, chief economist at Morgan Stanley Wealth Management, stated: "Consumers are still opening their wallets, and the labor market shows no signs of wavering. While these indicators will not change the Fed's policy direction, they once again confirmed the resilience of the US economy."
Bret Kenwell, investment strategist at eToro, said: "June retail sales were not explosively strong, but not worrisome either. Especially considering that May figures were revised upward, this is not a signal indicating consumption slowdown. The upcoming corporate earnings announcements will be an important test to determine whether consumers remain solid or have started reducing spending."
FAQ
Q: Why did TSMC's stock price fall despite reporting strong second-quarter results on May 16?
A: TSMC raised its capital expenditure forecast from $52-56 billion to $60-64 billion. The market reacted more sensitively to the massive investment burden than to profitability, causing the stock to decline 2.3% despite better-than-expected results.
Q: What concerns are investors expressing about AI infrastructure investments?
A: US hyperscalers are expected to invest over $725 billion in AI-related infrastructure this year. However, uncertainty remains about when these astronomical investments will translate into actual returns, raising questions about whether AI investment can continue to justify rising company valuations.
