Updates with afternoon trading, adds analyst comment and market details

By Noel Randewich and Shashwat Chauhan

July 7 (Reuters) - The S&P 500 dipped on Tuesday, weighed down by losses in Micron Technology and other chipmakers due to mounting doubts about the sustainability of Wall Street's AI-driven rally.

Chip stocks in Asia and the United States dropped after memory chip giant Samsung Electronics' 005930.KS blowout earnings report failed to satisfy investors with sky-high expectations.

Micron MU.O dropped over 5% and SanDisk SNDK.O fell almost 8%. That helped send the PHLX chip index .SOX down 4.4%, reducing its 2026 gain to 74%.

Adding to worries about high-flying chipmakers, Reuters reported that Chinese startup DeepSeek is developing its own AI chip, a push that could reduce its dependence on Nvidia NVDA.O and Huawei chips.

While the S&P 500 declined, most of the benchmark's 11 sector indexes rose, led by a 1.6% gain in energy .SPNY. Advancing issues outnumbered falling ones within the S&P 500 .AD.SPX by a 1.4-to-one ratio.

Tuesday's chip selloff marks the latest bout of volatility among memory chipmakers and other AI-related stocks as investors worry that sharp gains related to the buildout of AI data centers may have left the shares too pricey.

"The story of today is the story of the last few weeks, and that's rotation after the blistering run in the AI buildout, semis and memory. Expectations have gotten to be almost impossible to beat for these companies," said Zachary Hill, head of portfolio management at Horizon Investments in Charlotte, North Carolina.

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

Elon Musk's SpaceX SPCX.O fell about 5% in its first day of trading as part of the Nasdaq 100 index .NDX, and after a wave of brokerages initiated coverage on the stock.

The S&P 500 was down 0.27% at 7,516.76 points.

The Nasdaq declined 0.64% to 25,954.35 points, while the Dow Jones Industrial Average was down 0.27% at 52,915.17 points.

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

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

Fiserv FISV.O climbed 2.4% 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.

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.