Taiwan Semiconductor Manufacturing Co. (TSMC) raised its 2026 capital expenditure forecast from $60 billion to $64 billion on Thursday, a move that immediately reversed the global semiconductor rally. The Philadelphia Semiconductor Index fell 4.3 per cent, the Stoxx Europe Total Market Semiconductors index dropped 5.0 per cent, and South Korea’s Kospi—heavily weighted toward chipmakers—tumbled 6.4 per cent. The sell-off spread to broader benchmarks: the Nasdaq Composite lost 1.5 per cent, the S&P 500 shed 0.5 per cent, and Frankfurt’s DAX declined 0.3 per cent. London’s FTSE 100 was a rare gainer, rising 0.5 per cent, cushioned by its lower tech exposure.

The sell-off reflected deepening unease about the return on enormous artificial-intelligence investments. TSMC’s quarterly profit jumped 77 per cent and revenue beat expectations, yet the larger capex plan rekindled fears that spending by the largest AI operators—projected by UBS to approach $1 trillion globally by 2027—may outstrip near-term returns. Memory-chip makers bore the brunt: Sandisk fell 12.6 per cent, Western Digital 9.2 per cent, and Micron Technology 5.6 per cent. In Europe, STMicroelectronics and BE Semiconductor lost 4.9 per cent and 3.2 per cent respectively. Analysts in New York noted that the chip sector’s weight in the S&P 500 has grown from 8 per cent to over 20 per cent in three years, making its swings the dominant driver of index-level moves.

Geopolitical tensions compounded the pressure. The United States and Iran extended their exchange of airstrikes, with Washington reportedly inclined to expand military operations and Tehran striking US bases in Kuwait and Jordan. Brent crude briefly topped $85 a barrel before settling at $84.23, up roughly 11 per cent for the week. The sustained closure of the Strait of Hormuz and the risk of further supply disruption pushed benchmark government bond yields higher: the 10-year US Treasury yield edged up to 4.56 per cent, while Germany’s 10-year yield reached 3.13 per cent, its highest since May. In currency markets, the dollar index steadied near a one-month low, and the yen remained under pressure near 162 to the dollar.

Mixed economic data did little to alter the defensive tone. US retail sales rose 0.2 per cent in June, slightly below forecasts, while jobless claims fell more than expected. UK GDP grew just 0.1 per cent in May. The combination of resilient consumer spending and elevated oil prices kept alive the possibility that central banks may need to raise rates further, even as traders priced only a 10 per cent chance of a Federal Reserve hike this month. The next factual milestone is the continuation of second-quarter earnings season, with results from major technology and industrial firms set to test whether the AI spending narrative can regain its footing.