U.S. equities closed sharply lower on Friday, ending the week on a cautious note as a Broadcom-led selloff across heavyweight technology stocks sparked a broad rotation away from high-growth names. Concerns over profit margins in the semiconductor sector and renewed scrutiny of artificial intelligence-linked valuations outweighed the supportive backdrop of recent Federal Reserve rate cuts.

The S&P 500 fell 1.07% to 6,827 points, while the Nasdaq Composite dropped 1.8%, marking its steepest single-day decline in weeks. The Dow Jones Industrial Average slipped 0.4%, retreating from record territory reached earlier in the session. Despite Friday’s losses, the Dow still managed a weekly gain, highlighting the growing divergence within U.S. equity markets.

Broadcom Warning Sparks Sector-Wide Selloff

The sharp downturn was led by Broadcom, which plunged 11.4% after warning that margin pressures could intensify, unsettling investors who had driven semiconductor and AI-related stocks to elevated valuations in recent months. The warning triggered a wave of selling across the sector, with Nvidia down 3.3%, Oracle falling 4.5%, Advanced Micro Devices sliding 4.8%, and Micron Technology tumbling 6.7%. Palantir also declined 2.1%, extending losses among AI-exposed names.

Market participants said the selloff reflected growing sensitivity to earnings quality rather than revenue growth alone, as investors reassess whether AI-driven demand can sustainably offset rising costs and capital expenditure requirements.

Rotation Into Defensive and Cyclical Names

As technology stocks sold off, capital rotated toward more defensive and cyclical areas of the market, a pattern that has emerged repeatedly in recent weeks. The move suggests investors are becoming more selective following a powerful rally that pushed the S&P 500 to an all-time high of 6,921.75 in October.

Despite Friday’s decline, the broader market remains supported by monetary easing. The Federal Reserve’s recent rate cut has helped stabilize financial conditions, though comments from the Cleveland Fed president indicating a preference for slightly tighter policy to contain inflation added to uncertainty around the future pace of easing.

Earnings Bright Spot Offers Partial Relief

One notable exception to the day’s negative tone was Lululemon Athletica, which surged 9.6% after raising its full-year outlook and announcing a planned CEO transition. The stock’s performance underscored the market’s continued willingness to reward companies delivering clear earnings visibility and strong execution, even amid broader volatility.

Weekly Performance Highlights Market Divergence

For the week, the S&P 500 slipped 0.5%, the Nasdaq fell 1.9%, and the Dow rose 1.2%, highlighting a growing split between technology-heavy indices and more diversified benchmarks. Over the past month, the U.S. benchmark index remains up 1.33%, while year-on-year gains stand at 12.83%, reflecting underlying resilience despite near-term turbulence.

Looking Ahead

Investors now turn their focus to upcoming inflation data, corporate earnings updates, and further guidance from Federal Reserve officials. While rate cuts continue to underpin risk appetite, analysts warn that elevated valuations—particularly in AI-linked stocks—leave markets vulnerable to sharp pullbacks when earnings expectations are challenged.