Intel shares sank 26% on Friday in their worst day since 1974 after the chip manufacturer suspended its dividend and slashed its workforce to fund a costly turnaround after losing its once-dominant global position.
The company lost more than $30 billion in market value after it gave a disappointing forecast and said it would cut 15% of its workforce, deepening worries about its ability to catch up with Taiwan's TSMC and other chipmakers.
The stock ended the day at $21.48, its lowest since 2013.
"Intel's issues are now approaching the existential in our view," Bernstein analyst Stacy Rasgon said.
Rasgon said Intel could add $40 billion in cash to its balance sheet by the end of 2025 through the moves, as well as subsidies and partner contributions.
While Intel's manufacturing setbacks are specific to the Santa Clara, California-based company, other chipmakers also sank for a second straight day.
Weak employment numbers on Friday caused a sharp increase in worries about a slowdown in the U.S. economy, leading traders to bet that the U.S. Federal Reserve will deliver a big half-percentage-point rate cut in September, instead of a 25-bp cut expected before the data.
"The excitement over AI and large cap technology is coming back to earth. The future is still bright, but the truth is investors got a tad too excited and once again, we see when everyone gets on one side of the boat what can happen," said Ryan Detrick, chief market strategist at The Carson Group.
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Companies selling equipment used in factories run by Intel and other manufacturers fell sharply, signaling investor concerns about the pace of future investments in manufacturing infrastructure. Applied Materials, ASML Holding and KLA Corp all dropped around 8%.
The PHLX chip index sank 5.2%, bringing its loss this week to almost 10%.
Nvidia dropped almost 2%, with the dominant seller of AI processors down over 20% from its record high close on June 18.
Heightened worries about a recession, along with quarterly reports from Amazon and Alphabet that failed to impress Wall Street, have fueled doubts about the future pace of investment in AI, said Ross Mayfield, an investment strategy analyst at Baird.
"There's a broader question of whether this AI capex can continue basically vertical or exponential growth, especially if the macro backdrop is softening," Mayfield said.