AI Trade Unwinds as Middle East Tensions Create Market Volatility
US stock futures opened to a mixed performance on Wednesday as investors navigated two conflicting forces. On one hand, cautious optimism around Middle East diplomatic progress influenced sentiment, while on the other hand, the unwinding of the AI trade continued to weigh heavily on markets.
The catalyst for the tech sector's pain was SK Hynix's Q2 results, which reported a 557% year-over-year increase in operating profit. Despite this impressive figure, the company's shares cratered nearly 10-11% in Seoul trading, sending shockwaves throughout the semiconductor sector.
The damage radiated outward from Seoul with impressive speed, with the PHLX Semiconductor Index dropping more than 5%. Nvidia fell over 3%, AMD declined approximately 5%, and Micron tumbled 9%. SanDisk shed 7% as well. The semiconductor sector has now entered bear market territory as of July 2026, giving back significant gains accumulated since its June 2026 peaks.
Barclays responded to the news by cutting its price target on SK Hynix's US-listed ADRs from $330 to $300, although it didn't downgrade the stock outright. The ongoing US-Iran discussions also added another variable to the mix, primarily through the lens of oil prices.
The tech sector's woes even had a ripple effect in the crypto world, with SK Hynix-related perpetual futures on the platform Hyperliquid cratering approximately 19-20% in what appeared to be a cascading liquidation event. The result was roughly $60 million in forced liquidations, later covered by a crypto firm.