Nasdaq swings wildly, closes down 1% after brief 4% plunge as AI stocks, Middle East tensions rattle markets

US stocks closed mixed Tuesday after a turbulent session driven by volatility in AI-related technology shares and renewed tensions in the Middle East.

The Nasdaq Composite fell 250.84 points, or 0.97 percent, to close at 25,678.82. The S&P 500 dropped 19.08 points, or 0.26 percent, to 7,386.65, while the Dow Jones Industrial Average edged up 86.10 points, or 0.17 percent, to 50,872.11.

Markets were whipsawed throughout the session as concerns over stretched valuations and short-term overheating in AI semiconductor and technology stocks resurfaced, compounded by an escalation in Middle East tensions.

The Nasdaq opened strongly, rising as much as 1.27 percent in early trading, before reversing sharply and falling as much as 3.66 percent. The index then clawed back a significant portion of those losses before the close.

The Philadelphia Semiconductor Index also surged roughly 3 percent at the open, only to plunge as much as 8.6 percent during trading as selling pressure intensified. It recovered much of the decline to finish down 1.93 percent.

Investor sentiment toward technology stocks was dampened by a lukewarm market reception to the AI platform Apple unveiled the previous day.

The anticipated initial public offering of Elon Musk's SpaceX this week was also cited as a drag, with institutional investors trimming positions in large-cap technology stocks to free up capital.

Middle East risk resurfaced as a major market factor. President Donald Trump claimed Iran shot down a US military helicopter patrolling the Strait of Hormuz and signaled a strong response. After the market closed, Trump said the United States had carried out a retaliatory strike against Iran.

Oil prices fell on expectations that passage through the Strait of Hormuz would resume. Brent crude futures for August delivery settled down 2.97 percent at $91.45 a barrel, while West Texas Intermediate for July delivery dropped 3.40 percent to $88.20.

Government bond prices rose. The yield on the 10-year US Treasury note fell 3 basis points to 4.53 percent.