The Nasdaq and the S&P 500 closed at more than one-week lows on Tuesday, dragged down by sharp losses in semiconductor stocks as investors scrutinized debt-funded AI spending and prepared for a more hawkish US Federal Reserve. The Dow was slightly lower.

The Philadelphia SE Semiconductor Index and the S&P 500 Information Technology Sector Index both fell.

Nvidia and Alphabet fell while chipmakers Intel, Marvell Technologies and Advanced Micro Devices also fell.

“Some of the recent news about AI raises questions about all the spending and ramping of semiconductors’ capex and capacity,” said Thomas Martin, senior portfolio manager at Globalt. Concerns about hyperscalers’ debt-funded ⁠AI spending have contributed to the selloff. Elon Musk’s SpaceX, which debuted this month, joins the list of megacaps tapping the bond market to raise capital.

Shares of SpaceX rallied following losses in the past three sessions.

Memory chipmakers Micron Technology and SanDisk, among the best performers on the S&P 500 this year, declined.

Micron’s earnings results on Wednesday could signal the outlook for the memory and AI chip sectors after a strong rally this year.

According to preliminary data, the S&P 500 fell 108.42 points, or 1.45%, to close at 7,364.37 points, while the Nasdaq Composite shed 578.76 points, or 2.21%, to close at 25,587.84. The Dow Jones Industrial Average closed down 44.67 points, or 0.09%, at 51,665.32.

The CBOE Volatility Index, a gauge of Wall Street’s fear, hit a one-week high.

Traders are increasingly betting on a second interest rate hike by the Fed by December, according to LSEG data, compared with investors expecting just one 25-basis-point hike two weeks ago to hawkish monetary policy under new chair Kevin Warsh.

Personal consumption expenditures price index data, the Fed’s preferred inflation gauge, is expected on Thursday. Investors are eyeing developments in the Middle East after the US waived sanctions on Iran for 60 days following the first round of talks under a new peace deal.