Intel's stock just guided the chip sector toward a sharp selloff. Here's why.

By Britney Nguyen

Analysts note 'buyer exhaustion' as well as market concerns about what the latest inflation data may mean for future data-center spending commitments

Intel's stock closed down on Tuesday, alongside other semiconductor stocks.

The excitement around Intel and other chip stocks cooled down in a big way on Tuesday.

Shares of Intel (INTC) closed down 6.8% on Tuesday alongside those of chip makers such as Micron Technology (MU) and Sandisk (SNDK). Micron's stock fell 3.6%, while Sandisk's stock was off 6.2%. Those three stocks have been some of the poster children for the blazing artificial-intelligence rally that's been taking the market by storm in recent weeks.

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Jefferies equities-trading analyst Jeffrey Favuzza noted on Tuesday that the broader semiconductor sector was moving lower "without a clear singular datapoint" aside from "some buyer exhaustion following the recent moves."

D.A. Davidson managing director Gil Luria pointed to wider market concerns around higher inflation. Investors are seeing the latest government reading "as a sign the data-center buildout could slow if companies pull back on their AI investment," Luria told MarketWatch in emailed comments. That would lead to a pullback in demand for chips, he said.

The PHLX Semiconductor Index SOX closed down 3%.

Intel's stock was the second-biggest loser in the S&P 500 SPX on the day, with only Qualcomm's stock (QCOM) suffering a steeper decline - in excess of 11%.

Despite Tuesday's sharp fall, Intel's stock has climbed 85% in the past month and nearly 227% so far this year as the market grasps the importance of its server central processing units in the agentic AI era.

Intel's foundry business, which is aiming to attract external customers for its chip manufacturing, has also been a bearer of seemingly good news for investors.

Late last week, the Wall Street Journal reported that the chip maker had reached a preliminary agreement to make chips for Apple (AAPL), helping send Intel shares up 14%. That was followed on Monday by a report from ZDNet Korea saying that memory-chip maker SK Hynix (KR:000660) is looking to adopt Intel's Embedded Multi-Die Interconnect Bridge, or EMIB, advanced chip-packaging technology.

See more: Intel's stock extends its hot streak. This is the latest source of optimism.

Deutsche Bank analyst Ross Seymore said that, while chip-packaging deals "can yield 'billions' of incremental revenue," partnerships for chip manufacturing "are more interesting due to their potential size, profitability and endorsement of Intel having fixed its wafer manufacturing process."

Wall Street has pinned much of Intel's turnaround story on finding major customers for its upcoming 14A process node. One such potential customer is Elon Musk, who announced in April that he plans to use 14A to manufacture chips for his Terafab project that will serve Tesla (TSLA) and SpaceX.

Seymore said in a Monday note that a collaboration between Intel and Apple "would be logically beneficial for both parties," as Apple would have some onshore manufacturing to appease the Trump administration, while Intel would pick up a win for its foundry and score some validation for its chip-making technology.

Still, Seymore said, much of the enthusiasm around Intel's business is already priced into its stock. And, in regard to the potential Intel-Apple collaboration, "the actual earnings accretion" is unclear. Intel is still ramping up its foundry business, which could impact pricing and chip yields, he said.

-Britney Nguyen

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05-12-26 1719ET