Key Takeaways:
The Philadelphia Semiconductor Index slid 4.3% Thursday, bringing its decline from a June 22 record to 19% and within striking distance of a bear market.
"The selloff reflects a market questioning whether AI infrastructure spending can generate returns fast enough to justify current valuations," said Mark Wilson, head of EMEA equity hedge fund sales at Goldman Sachs.
All 30 SOX components traded below their June peaks. Memory-chip makers led declines, with Sandisk, Western Digital and Seagate each falling more than 9%. Intel and Micron dropped about 6%. The rout extended into Asia on Friday, with Japan's Nikkei 225 losing 4% and TSMC falling more than 7% despite reporting a 77% jump in quarterly profit.
The rotation out of semiconductors has fueled gains in sectors more directly tied to economic growth. The S&P 500 financials sector closed at a record for a second straight day, while the Dow Jones Transportation Average has surged 30% this year. The S&P 500 fell 0.5% to 7,533.77, the Nasdaq Composite lost 1.5% to 25,881.95, and the Dow slipped 0.2% to 52,553.32.
The divergence between chip stocks and the broader market highlights a shift in investor positioning. Declining issues outnumbered advancers by a 1.64-to-1 ratio on the Nasdaq, while the S&P 500 recorded 42 new 52-week highs and just two new lows. Volume on U.S. exchanges totaled 17.19 billion shares, below the 21.19 billion 20-day average.
Goldman's Wilson and Rich Privorotsky, head of EMEA equity flow intermediation, described the AI market as a "rubber band" being stretched by capital spending that exceeds operating cash flow growth at Microsoft, Amazon, Alphabet and Meta Platforms. The key question, they said, is not whether the market still believes in AI's long-term potential, but how long valuations and capex can sustain their current trajectory before returns materialize.
Rotation Broadens as Economic Data Holds Up
The selloff in semiconductors coincided with generally upbeat U.S. economic data. Core retail sales held steady, initial jobless claims unexpectedly fell, and the Philadelphia Fed manufacturing index surged past forecasts in July. The data reinforced a narrative of economic resilience that has drawn capital into cyclical sectors.
The U.S. 10-year Treasury yield edged up 1 basis point to 4.57%, while the 2-year yield rose 2 basis points to 4.16%. Crude oil traded near $79 a barrel for WTI and $84 for Brent as Middle East hostilities continued.
Marvell Technology has fallen nearly 40% since the SOX peak, though it remains up 121% for the year. Kioxia, the Japanese memory-chip maker, has lost more than half its value from a June high, sliding more than 16% on Friday alone.
The next major test for AI-related stocks comes July 22, when Alphabet and Tesla report quarterly results. Their commentary on AI investment plans and commercialization timelines could determine whether the semiconductor selloff deepens or stabilizes.
This article is for informational purposes only and does not constitute investment advice.
