Updates with afternoon trading levels

By Shashwat Chauhan and Avinash P

July 7 (Reuters) - The Nasdaq fell more than 1% on Tuesday, pressured by a selloff in semiconductor stocks including Nvidia amid mounting doubts about the sustainability of the AI-driven rally, while a report on China's DeepSeek making an AI chip also soured sentiment.

Nvidia NVDA.O shed 0.7% after Reuters reported Chinese startup DeepSeek is developing its own AI chip, a push that could reduce its dependence on Nvidia and Huawei chips.

Chip stocks tumbled across the world despite memory chip giant Samsung Electronics 005930.KS reporting a 19-fold jump in second-quarter operating profit and surpassing its combined earnings over the past three years.

On Wall Street, the Philadelphia SE Semiconductor index .SOX tumbled 5.7% to hit a four-week low. The index is on track to shed around $800 billion in market value if the losses hold.

"The memory component when it comes to AI is where a great deal of spending is going and it is (the) most expensive participant in the makeup of artificial intelligence," said Todd Schoenberger, chief investment officer at CrossCheck Management.

Shares of chip companies have been some of the biggest winners of the AI trade so far this year amid hopes of insatiable demand, though concerns of the sector being overbought as well as profit-taking by investors have led to some volatility.

Hyperscalers are expected to shell out billions in building out AI infrastructure, yet analysts have warned that investors are yet to see clear evidence of the heavy spending paying off.

Another test of the appetite for chip stocks looms later this week, when South Korean giant SK Hynix's 000660.KS U.S. listing starts trading on the Nasdaq.

Elon Musk's SpaceX SPCX.O began trading as part of the Nasdaq-100 index .NDX and a wave of brokerages initiated coverage on the stock as an industry-mandated quiet period ended. Its shares declined 5.3%.

Seven of the 11 S&P 500 sectors were trading higher as chip weakness overshadowed advances elsewhere. Energy .SPNY and healthcare .SPXHC were the top gainers.

At 11:51 a.m. ET, the Dow Jones Industrial Average .DJI fell 187.28 points, or 0.35%, to 52,868.32, the S&P 500 .SPX shed 41.18 points, or 0.54%, to 7,496.57, and the Nasdaq Composite .IXIC lost 320.48 points, or 1.23%, to 25,800.68.

The Dow hit an all-time high earlier in the session but declines in heavyweights Caterpillar CAT.N and Goldman Sachs GS.N weighed.

Wall Street's main indexes have rebounded off their lows and the Dow has reclaimed its record highs as receding oil prices on the back of easing Middle East tensions offered some support.

Oil prices, however, rose on Tuesday following reports of attacks on vessels near the Strait of Hormuz.

Fiserv FISV.O climbed 3.4% after media reports that the firm had held discussions with U.S. banks including JPMorgan JPM.N and Bank of America BAC.N to sell its payments infrastructure business handling debit card transactions.

Meanwhile, U.S. Federal Reserve watchers will get another glimpse into how new Chair Kevin Warsh steers the central bank when the minutes of its latest meeting are released on Wednesday, the first of his tenure.

Declining issues outnumbered advancers by a 1.39-to-1 ratio on the NYSE and by a 1.81-to-1 ratio on the Nasdaq.

The S&P 500 posted no new 52-week highs and no new lows, while the Nasdaq Composite recorded no new highs and no new lows.