Nvidia earnings, rising Treasury yields and fragile Iran negotiations are suddenly testing the AI-driven rally that carried Wall Street to record highs.

NEW YORK — U.S. stocks opened sharply lower Tuesday as a third straight session of selling in artificial-intelligence and semiconductor shares collided with another surge in Treasury yields and growing uncertainty surrounding the Trump administration’s negotiations with Iran, pushing Wall Street into its weakest stretch since the March market rebound began.

The Dow Jones Industrial Average fell 391 points, or 0.79%, shortly after the open to 49,295. The S&P 500 dropped 0.61% to 7,358, while the Nasdaq Composite slid 0.70% to 25,908 as investors continued pulling money out of the technology sector ahead of Wednesday evening’s closely watched Nvidia earnings report.

The broader concern inside markets is becoming increasingly clear:
Wall Street’s rally has become deeply dependent on artificial intelligence continuing to justify its enormous valuations at the exact moment inflation, oil prices and bond yields are all moving in the wrong direction simultaneously.

The Philadelphia Semiconductor Index, the broadest measure of U.S. chip stocks, fell another 0.6% Tuesday morning after already losing more than 6% over the previous two sessions. Traders across the market increasingly described the move as profit-taking and positioning reduction ahead of Nvidia’s report, which many now view as the single most important corporate earnings release of the year.

The pressure on technology stocks intensified as Treasury yields resumed climbing sharply higher.

The benchmark 10-year Treasury yield rose back above 4.6%, while the 30-year Treasury yield touched its highest level since October 2023. Rising yields typically pressure technology shares because high-growth companies depend heavily on future earnings expectations, which become less valuable when borrowing costs remain elevated.

The move also revived fears across Wall Street that the Federal Reserve may be forced to keep interest rates higher for longer — or potentially even raise rates again — if inflation pressures tied to energy and geopolitical instability continue worsening.

At the center of those inflation fears remains Iran.

President Donald Trump said Monday evening that he had postponed a planned U.S. military strike against Iran to allow negotiations with Gulf allies and Tehran to continue, calling the talks “serious negotiations” aimed at reaching a broader peace agreement.

Oil prices declined modestly Tuesday morning on hopes diplomacy could prevent a wider regional escalation.

West Texas Intermediate crude fell 1.38% to roughly $102.90 per barrel, while international benchmark Brent crude slipped 1.82% to around $110.10. Despite the decline, both remain dramatically elevated following weeks of disruption surrounding the Strait of Hormuz and continued military tensions across the Persian Gulf.

Markets are increasingly nervous because elevated oil prices continue feeding directly into inflation expectations throughout the broader economy.

Higher energy costs raise transportation expenses, industrial overhead, shipping costs and manufacturing prices across nearly every sector, making it harder for the Federal Reserve to ease monetary policy even as portions of the economy begin slowing.

The day’s corporate spotlight initially belonged to Home Depot, which reported quarterly results that modestly exceeded Wall Street expectations.

The home-improvement retailer posted adjusted earnings of $3.43 per share on revenue of $41.77 billion, both slightly ahead of analyst forecasts. Comparable sales edged higher, though executives acknowledged consumers remain cautious on large renovation and remodeling projects as elevated mortgage rates continue pressuring housing activity.

Chief Financial Officer Richard McPhail told CNBC that homeowners remain financially resilient overall but continue delaying bigger discretionary projects.

Investors, however, remained far more focused on Nvidia.

The AI chip giant reports earnings Wednesday afternoon, and the numbers are expected to heavily influence the direction of the broader market.

Analysts currently expect Nvidia to report earnings growth exceeding 100% year over year on revenue approaching $80 billion as global spending on AI infrastructure continues exploding.

Technology giants including Microsoft, Amazon, Meta Platforms and Alphabet are collectively spending hundreds of billions of dollars on AI data centers, semiconductors and cloud infrastructure, making Nvidia the central financial beneficiary of the artificial intelligence boom.

But after months of near-vertical gains across the AI trade, some investors increasingly worry expectations have become almost impossible to satisfy.

“For a stock this large, investors need reassurance that the AI story is still alive and well,” Paul Stanley, chief investment officer at Granite Bay Wealth Management, told CNBC. “Nvidia’s earnings will help set the tone for a stock market that is in need of its next catalyst after an incredible run since the March lows.”

Other strategists are becoming more cautious.

Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, warned this week that the recent rally may have become overly stretched as investors crowded aggressively into the same technology and AI-related trades.

That concern is now spreading across the broader market.

The Roundhill Magnificent Seven ETF, which tracks major technology leaders including Nvidia, Tesla, Meta, Amazon and Microsoft, traded lower again Tuesday as investors continued reducing exposure to high-growth technology shares.

Meanwhile, rate-sensitive sectors including homebuilders, regional banks and real estate investment trusts sold off alongside rising bond yields.

Energy shares remained one of the few relatively stable areas of the market as oil prices stayed historically elevated despite Tuesday’s pullback.

For now, Wall Street appears trapped between several competing forces all arriving simultaneously:

• surging AI optimism,
• rising inflation risks,
• elevated interest rates,
• geopolitical instability,
• and increasingly stretched market valuations.

The next 48 hours may determine which of those forces ultimately wins.

Because by Wednesday night, investors expect Nvidia to answer the question now driving nearly the entire market:

Is the AI boom still accelerating fast enough to justify the biggest technology rally in years — or is Wall Street finally beginning to run ahead of reality?

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