What happened: Nvidia (NVDA) stock tumbled 4% on Monday, leading the rest of the chip sector lower. As a result of the pullback, Apple (AAPL) surpassed Nvidia as the world's most valuable public company.
Peer chipmaker AMD (AMD) also declined more than 5% on Monday, and memory makers plunged, with Micron (MU) and SK Hynix (SKHY) dropping more than 2% and 6%, respectively.
**What's behind the move: **Reports that the company may backstop $250 billion in funding for OpenAI (OPAI.PVT) to lease computing power from a US data center project have renewed concerns about "circular" financing, an arrangement where suppliers are also major investors in their customers.
The potential deal would be one of the largest of its kind for the chipmaker, according to Bloomberg.
The AI chipmaker also announced a strategic collaboration with the conglomerate SK Group, the parent company of SK Hynix (SKHY), on Friday for a $500 billion-plus initiative spanning AI factories and next-generation memory.
At the same time, concerns that China may be winning the AI race are putting pressure on the sector. The Information reported that a Chinese state-backed company began mass-producing a key piece of chipmaking equipment, sparking a sell-off in ASML (ASML) shares.
What else you need to know: Worries of circular investments between a chipmaker like Nvidia and the AI developer that buys its equipment only add concerns about demand, AI valuations, and debt.
Bloomberg noted the price of protecting Nvidia's debt against default for five years rose by the most on record on Monday, stoking fears of rising funding commitments.
Investors have also grown increasingly jittery over AI infrastructure spending, calling into question their return on investment.
Last week, Alphabet** **(GOOG, GOOGL) shares plummeted after the tech giant announced it would raise its capital spending outlook as it builds out its AI infrastructure.
Investors are now awaiting earnings this week from Microsoft (MSFT), Amazon (AMZN), and Meta (META), all of which are expected to announce further increases in AI-related spending.
Any hint of a slowdown, however, would spell trouble for the companies that make semiconductors and related equipment.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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