S&P 500 Rebound Tests Whether AI Sell-Off Is Only a Valuation Reset

The S&P 500 climbed 0.27% following a two-day sell-off, with Micron Technology's upcoming earnings report positioned as the key test of whether AI sector weakness represents a valuation correction or a fundamental shift in investor sentiment toward artificial intelligence investments.

The semiconductor index crashed 8% as doubts intensified over whether massive AI infrastructure spending will deliver profitable returns. The sharp decline follows growing scrutiny of AI capital deployment across the tech sector, with investors questioning the timeline and magnitude of returns on billions in data center and chip investments.

The Federal Reserve's hawkish posture has compounded pressure on tech equities. Rate hike expectations for September have jumped to 70%, up from earlier pricing, creating headwinds for high-multiple growth names that dominated 2023 and early 2024 performance. Higher rates increase discount rates applied to future earnings, particularly punishing stocks trading on long-term AI growth narratives.

Micron's report will offer concrete insight into semiconductor demand and pricing power, serving as a bellwether for whether AI chip orders remain robust or are beginning to soften.