Wall Street is heading into Wednesday’s close with one number on its mind: Micron’s fiscal third-quarter earnings, due after the bell. The report lands at the tail end of a brutal stretch for chip stocks and has turned into the market’s clearest read yet on whether the AI infrastructure boom still has room to run. ClearSky Capital‘s market strategy team breaks down what’s driving the volatility and what to watch next.
A Brutal Tuesday for Chip Stocks
Tuesday was ugly across the board. The S&P 500 fell 1.44% to 7,365.46, the Nasdaq Composite dropped 2.21% to 25,587.04, and even the Dow Jones Industrial Average slipped 0.09%. The damage was concentrated almost entirely in semiconductors. Micron tumbled 13.2%, its worst session since June 5, just two days after touching a fresh all-time high. Sandisk lost 11.2%, while Nvidia, Broadcom, Qualcomm, and AMD fell between 3% and 8%.
By Wednesday morning, the mood had shifted. The Invesco QQQ Trust rose 0.46% in premarket trading, and Micron clawed back roughly 4% ahead of the open, as traders positioned for an earnings report that could either confirm the selloff was overdone or validate growing doubts about AI spending.
Why South Korea’s Selloff Spilled Into Wall Street
The trigger wasn’t domestic. South Korea’s KOSPI index plunged nearly 10% overnight, led by SK Hynix and other memory chip names that have powered much of the country’s market gains this year. Two pieces of news fed the panic: SK Hynix is slowing production of advanced AI chips in order to free up capacity for ordinary commodity DRAM, a signal that some AI compute demand may be cooling, and the company is separately preparing a US listing that could raise close to $30 billion, one of the largest of its kind on record.
For a memory sector already trading at premium valuations, both developments point the same way: more supply hitting the market at a moment when investors are starting to question whether AI capital spending will generate the returns currently priced in.
Micron’s Earnings: The Market’s Next Big Catalyst
That’s what makes tonight’s print so consequential. Analysts polled by FactSet expect Micron to report adjusted earnings of $20.83 per share on revenue of roughly $35.75 billion, a dramatic jump from the same quarter last year. A clean beat with confident AI-demand commentary could stabilize the entire memory complex. A disappointing forecast, paired with the SK Hynix supply overhang, risks reigniting the kind of selling that hit the sector on Tuesday.
This earnings report is effectively standing in for a much bigger question: are hyperscalers’ AI buildouts still on track, or is the market starting to price in a slowdown.
The Fed Adds Another Layer of Uncertainty
Chip volatility isn’t happening in isolation. Bank of America now expects the Fed, under new Chair Kevin Warsh, to raise rates three times this year, in September, October, and December, a notably more hawkish call than the steady-rate forecasts banks were making just months ago. Higher-for-longer rates raise the cost of the debt-funded capital spending that has underwritten much of the AI buildout, adding another variable to an already jittery sector.
Markets also have a busy data slate today, with May new home sales figures and the results of the Fed’s annual bank stress tests both due, alongside Wednesday’s other earnings from Paychex and Jefferies Financial.
What’s Bubbling Beneath the Surface
Not everyone is convinced the AI trade is in trouble. SoftBank founder Masayoshi Son pushed back hard this week, calling it “blasphemy” to bet against artificial intelligence, according to a report from Nikkei Asia. Elsewhere, IBM shares jumped 5% Tuesday on an upgrade to overweight at JPMorgan, and defensive names like Walmart, Procter & Gamble, and Johnson & Johnson caught a bid as investors rotated out of high-multiple tech.
Energy markets, meanwhile, offered a small offset. Brent crude slid to $75.59 a barrel, its lowest level since before the Middle East conflict began on February 28, easing one cost pressure even as chip-sector anxiety dominated headlines.
What Investors Should Watch From Here
The next 24 hours will likely set the tone for the rest of the week. A strong Micron report, paired with reassuring commentary on AI demand, could put Tuesday’s rout behind the market quickly. A weak one, layered on top of the SK Hynix supply news and a more hawkish Fed, could turn a sector-specific selloff into a broader reassessment of AI-related valuations heading into the second half of 2026.
