Semiconductor stocks suffered their steepest one-day decline in nearly two years on Tuesday, with NVIDIA shedding more than 6 percent and the Philadelphia Semiconductor Index falling 4.8 percent, as investors moved aggressively to trim exposure to the artificial intelligence infrastructure trade ahead of Senate Energy Committee hearings set to begin Wednesday on the proposed two-year moratorium on new data center construction.

The selloff accelerated through the afternoon session in New York and dragged the broader market lower, with the S&P 500 closing down 1.9 percent and the Nasdaq Composite down 2.7 percent. Beyond NVIDIA, shares of Broadcom fell 5.1 percent, Advanced Micro Devices dropped 4.6 percent, Micron Technology lost 5.4 percent, and Taiwan Semiconductor Manufacturing Company’s American depositary receipts gave up 4.2 percent. Arm Holdings closed down 3.8 percent. Hyperscalers fared somewhat better but still finished lower, with Microsoft off 1.7 percent, Amazon off 2.3 percent and Alphabet off 2.1 percent.

Traders and portfolio managers described the move as a convergence of three pressures that had built through the day. Hearings beginning Wednesday morning at the Senate Energy and Natural Resources Committee will produce the first sustained public examination of how much electricity the country’s AI buildout actually requires and whether the existing grid can supply it; a weekend of quiet inference throttling at the major cloud providers had already raised that question in concrete terms; and Brent crude held above $120 a barrel through the session, keeping pressure on natural gas inputs that increasingly fuel the marginal electron on the eastern grid.

“The AI trade has been the single most crowded long position in global equities for eighteen months, and today is the day a meaningful slice of that money decided it does not want to be in the room when the Senate Energy chairman gavels in tomorrow,” said Maya Petrov, head of US equity strategy at Northbridge Capital Partners. “It is not that the moratorium is going to pass. It is that the hearing is going to produce on-camera testimony from utility executives about what the grid can and cannot serve, and that testimony is not going to be flattering to consensus assumptions about 2027 capital expenditure.”

The hearing schedule released Monday afternoon by the committee chairman lists testimony from chief executives or senior officers of three of the four signatory hyperscalers to Monday’s joint industry letter, alongside the chief executives of Dominion Energy, the Electric Reliability Council of Texas, the PJM Interconnection and the Edison Electric Institute. The Sanders office and the Ocasio-Cortez office have each submitted prepared remarks and supporting witnesses, including two electricity economists and a former Federal Energy Regulatory Commission commissioner. A second day of hearings is scheduled for Thursday focused on consumer rate impacts and grid reliability.

Options market activity through Tuesday suggested institutional positioning had shifted decisively defensive. Implied volatility on one-week NVIDIA options rose to its highest level since the August 2024 correction, and the put-to-call ratio on the iShares Semiconductor exchange-traded fund climbed above 1.4 for the first time in 2026. “The flows we have seen since Friday’s close are textbook risk reduction into a known binary event,” said Anil Krishnan, a derivatives strategist at Pierpont Securities. “Clients are not hedging a tail. They are positioning for the body of the distribution to move.”

Wall Street analysts have begun adjusting capital expenditure forecasts that until recently were close to industry-supplied guidance. Morgan Stanley’s semiconductor team trimmed its calendar-year 2026 hyperscaler AI capital spending estimate by 4 percent on Tuesday morning, citing “elevated probability of construction delays from permitting frictions and political headwinds independent of the moratorium itself.” Bernstein’s data infrastructure analyst, who has been among the most bullish voices on the AI trade, wrote in a note distributed to clients before the open that the firm was “moving from outright bullish to constructive” on NVIDIA into the company’s August earnings report, “pending clarity on the grid story.” Citi maintained its overweight ratings but acknowledged in a research note that “the path to 2027 numbers now requires assumptions about transmission build-out that no one in this industry controls.”

The chip stock weakness was particularly pronounced in companies most exposed to AI training cluster demand. NVIDIA’s H200 and Blackwell families of accelerators have been the central enabling technology for the data center buildout, and the company’s revenue trajectory has been the most-watched single corporate datapoint of the post-pandemic technology cycle. Tuesday’s decline reduced NVIDIA’s market capitalization by roughly $180 billion, although the company remained the most valuable publicly traded firm in the United States by a substantial margin.

Investors were also responding to a set of newly visible secondary risks. A report published Tuesday afternoon by the consultancy Wood Mackenzie estimated that the cost of behind-the-meter natural gas generation at large data centers had risen 28 percent since the start of the Iran war, reflecting both higher fuel costs and accelerated demand for turbines that had pushed delivery timelines into 2028 and 2029. Separately, the Edison Electric Institute confirmed that several utilities had paused or extended the review period on large new data center interconnection applications submitted in March, including projects in Virginia, Georgia and Ohio.

Foreign holders of US technology equities appeared to be among the sellers. Strategists at two European banks said weekly fund flow data through Monday showed redemptions from US technology-focused mutual funds and exchange-traded funds reaching their highest pace since 2022, with European and Japanese investors particularly active. Sovereign wealth fund activity was harder to discern but several brokerage desks reported large institutional sell programs in chip stocks running through the Tuesday afternoon session.

Hyperscaler executives scheduled to testify Wednesday were preparing remarks that would emphasize the $42 billion commitment outlined in Monday’s joint letter, according to two people familiar with the preparations who were not authorized to discuss them publicly. The executives planned to argue that the industry was already self-correcting on grid impact and that legislative action risked locking in foreign advantage at exactly the wrong moment. Whether that case could be made effectively under the questioning of senators from both parties, several of whom have expressed skepticism in recent days, would shape market sentiment heading into the Thursday session and into the following week, when the Senate is expected to begin floor consideration of the bill.

Trading desks were bracing for further volatility. “Tomorrow at ten a.m. Eastern, every chip portfolio manager in the country is going to be watching cable news with the sound on,” Petrov said. “Whether the trade comes back depends on whether the witnesses make the grid sound like a manageable engineering problem or like a constraint that has finally caught up with the math.”