By Johann M Cherian and Ragini Mathur
July 28 (Reuters) - The benchmark S&P 500 edged higher in a choppy session on Tuesday, as gains in other sectors offset a decline in chip stocks ahead of key earnings reports from some of Wall Street's "Magnificent Seven" companies.
Global markets have become increasingly volatile this month as investors scrutinize the need for more corporate spending on AI infrastructure such as semiconductors that underpinned strong gains in chip stocks in the previous quarter.
Reflecting the volatility on Tuesday, the tech-heavy Nasdaq was trading off session lows after hitting levels last seen in late April earlier in the session.
Chip majors such as Micron slid 8.8%, Intel shed 4.6%, while Nvidia wobbled and was last up 1%. SanDisk fell 13%, while Dell and Seagate lost over 10% each.
The Philadelphia SE Semiconductor Index was down 3.5%, while Roundhill's Memory Exchange Traded Fund fell 7.2% to an over two-month low.
Signs that Wall Street's biggest companies such as Alphabet and Tesla are running out of cash to fund their ambitions have also made markets nervous, while China showcases cheaper AI models and deepens its presence in the competitive semiconductor industry.
"Investors are becoming less willing to reward higher AI spending on its own and are increasingly looking for progress in earning a return on that investment," Brian Therien, a senior analyst at Edward Jones, said.
When AI hyperscalers Amazon.com, Meta, Apple and Microsoft report earnings later this week, investors will be keen to see if their investments, worth over several hundred billion dollars, are yielding returns.
Concerns have also been compounded by AI companies striking a slew of circular deals, such as the report on Nvidia providing roughly $250 billion in financing guarantees for OpenAI as part of a massive data center project.
Investors instead favored more cash-laden tech companies. Apple rose 0.8%, sending its market capitalization briefly above $5 trillion for the first time and making it only the second company ever to achieve that milestone after Nvidia.
At 12:10 p.m. ET, the Dow Jones Industrial Average rose 648.32 points, or 1.24%, to 52,858.40, the S&P 500 gained 26.61 points, or 0.36%, to 7,439.79 and the Nasdaq Composite lost 3.47 points, or 0.01%, to 24,928.61.
Eight of the sectors on the S&P 500 were higher, with consumer staples , materials and healthcare up over 2% each.
Dow component Coca-Cola gained 5.5%, as the beverage company raised its annual revenue and profit forecasts.
Boeing gained 4.6% after the airplane maker generated positive free cash flow as its turnaround plans gained momentum.
The Federal Reserve is due to announce its interest-rate decision on Wednesday. Traders see a 28% chance of a rate hike this week, according to LSEG data, and expect borrowing costs to rise by at least 25 basis points by year-end.
Higher rates could further pressure AI companies that are becoming more dependent on debt financing.
Corning tanked 15% after third-quarter sales forecasts missed estimates, while contract research firm IQVIA Holdings added 13% after lifting its annual profit forecast.
Oil prices also offered some broader relief, falling 5.5% to $83.5 a barrel on hopes that tensions in the Middle East and in Ukraine would ease as the White House hosted Israel's Benjamin Netanyahu and Kyiv's Volodymyr Zelenskiy.
Advancing issues outnumbered decliners by a 1.56-to-1 ratio on the NYSE. Declining issues outnumbered advancers by a 1.06-to-1 ratio on the Nasdaq.
The S&P 500 posted 62 new 52-week highs and one new low, while the Nasdaq Composite recorded 149 new highs and 166 new lows.
(Reporting by Johann M Cherian, Ragini Mathur and Utkarsh Tushar Hathi in Bengaluru; Editing by Shinjini Ganguli and Maju Samuel)
