The S&P/ASX200 fell 82 points by midday on Tuesday, down 0.94 per cent, to a 10-week low of 8,667.9, as the broader All Ordinaries lost 74.4 points, or 0.83 per cent, to 8,849.5.
"The combination of higher interest rates, (Brent) oil prices holding above US$105 a barrel, and a sudden rethink of the risks around the speed of the AI build-out, presents a challenging macro environment for the local market today," Moomoo chief market strategist Tapas Strickland said.
"The larger question for Australian portfolios is whether risks are indeed building over the speed of the AI build-out, or whether such talk is a front for other motivations such as US AI firms seeking to increase the barriers to Chinese open-source models."
A rapid rotation out of semiconductor and AI hardware stocks into software was echoed on the local exchange, propelling Australia's IT sector almost two per cent higher as WiseTech, Xero and Technology One charged.
Consumer-facing stocks, along with communications and health care also advanced.
The basic materials sector swung 1.9 per cent in the other direction, as BHP and Rio Tinto tumbled on lower copper prices, while iron ore futures hovered just below $US97 a tonne.
Gold stocks were a sea of red as the precious metal fell to $US4,309 ($A6,041) an ounce, selling off alongside battery minerals and rare earths producers.
The energy sector dropped 1.1 per cent as crude prices traded on par with Monday, with Woodside, Santos, Ampol and Viva losing ground, while investors continued to unload uranium miners.
Coal producers also broadly fell, but New Hope Corporation bucked the trend with a nearly three per cent rally after declaring a healthy dividend despite its full-year net profit slipping more than 60 per cent to $161 million.
The heavyweight financials segment continued to drag, losing 0.8 per cent as each of the big four banks turned lower, led by a 1.4 per cent slump in CommBank to $152.80.
In company news, Vittoria Shortt is stepping down as chief executive and managing director of CBA-owned ASB Bank, with CommBank's institutional banking and market group executive Sinead Taylor stepping into the role in December.
Drought conditions in Indonesia have disrupted the ramp-up of Nickel Industries' Excelsior project, with output expected to drop to 30 per cent until water availability improves later in the year.
Zip Co shares jumped more than five per cent after launching a $50 million share buyback, starting with $2.1 million at up to $2.15 a share.
The Australian dollar is buying 71.33 US cents, down from 71.37 US cents on Monday at 5pm.
