Updates after markets open

By Ragini Mathur and Avinash P

July 17 (Reuters) - The S&P 500 and the Nasdaq slipped on Friday, as investors reassessed this year's AI-fueled rally, deepening a selloff in chip stocks, while news of a new AI model from China further soured sentiment.

After a blistering run that lifted main stock indexes to record highs, investors have started to retreat from crowded semiconductor trades over worries about the scale of AI-related spending.

Chip stocks, broadly, extended the previous session's weakness, with heavyweight Nvidia NVDA.O down 1.4%.

This decline combined with an early gain in Apple AAPL.O, pushed the iPhone maker ahead of Nvidia to briefly become the world's most valuable company.

The Philadelphia SE Semiconductor index .SOX fell 1.8% and was set for its worst week since March. The gauge has shed more than 20% from its late June record high.

"It does feel very much a chip stock-driven move, just sort of hurting sentiment more broadly." Fiona Cincotta, senior markets analyst at City Index, said.

Chinese AI startup Moonshot unveiled Kimi K3, a 2.8 trillion-parameter model it said was the world's largest open-weight AI, adding to investors’ concerns over whether hefty spending by heavyweights will deliver tangible results.

"The latest development is the competition from open source models in China, which raised some competitive fears," Angelo Kourkafas, senior global investment strategist at Edward Jones Investments said.

"Supposedly, there are some offerings that are rivaling the performance of Anthropic and OpenAI... potentially that is contributing today to some of that weakness that started in Asia."

All three main indexes were poised for weekly losses, as an upbeat start to second-quarter earnings and benign inflation data were overshadowed by concerns over the chip sector.

Netflix NFLX.O forecast third-quarter results below Wall Street estimates, sending shares of the streaming giant down 9%. The losses weighed heavily on the communication services sector .SPLRCL, which fell 2.4%.

The CBOE Volatility Index .VIX, Wall Street's fear gauge, rose 1.30 points to 18.03 — the highest in more than a week.

At 10:10 a.m. ET, the Dow Jones Industrial Average .DJI rose 4.56 points, or 0.01%, to 52,557.53, the S&P 500 .SPX lost 43.71 points, or 0.58%, to 7,490.05 and the Nasdaq Composite .IXIC lost 323.79 points, or 1.25%, to 25,558.15.

The tech-heavy Nasdaq hit a three-week low earlier in the session, before cutting some losses.

Risks from the Middle East conflict continued to loom large as the United States struck bridges and an airport in Iran and Tehran responded by hitting a power and desalination plant in Kuwait.

U.S. consumer sentiment, however, increased to a five-month high in July, but that is likely temporary as the renewed U.S.-Iran tensions raises gasoline prices.

Among other movers, Intuitive Surgical ISRG.O shares slid nearly 11.4% after the medical device maker kept its da Vinci procedure-growth forecast unchanged and warned insurance-plan changes may be delaying patient care.

Declining issues outnumbered advancers by a 1.24-to-1 ratio on the NYSE and by a 1.55-to-1 ratio on the Nasdaq.