Chip stocks fall 17% from record despite 144% profit surge

Record semiconductor profits weren't enough to keep the PHLX Semiconductor Index out of bear-market territory.

The PHLX Semiconductor Index fell 17% from its June 22 record and briefly entered bear-market territory for the first time since 2024, even as sector profits surged 144% year over year, according to LSEG data.

"Unprecedented profit increases had been largely priced in by investors ahead of this earnings season," said Shaon Baqui, research analyst at Janus Henderson. "It hasn't been enough just to put up numbers. You have to really shock-and-awe."

SK Hynix booked roughly $65 billion in profit for the quarter ended June 30, a 13-fold increase from last year and nearly as much as it had earned in the prior 29 years since its IPO combined. Shares fell 8.7% after the results. AMD reported record sales after the close Tuesday, beating analyst estimates for revenue and profit, but its shares tumbled almost 8% after hours. The semiconductor index added 6.6% Tuesday and has staged a 17% comeback from the selloff's bottom last Wednesday, led by SK Hynix.

Individual investors net sold more than $6 billion worth of technology stocks last week, the most in any week since at least 2019, according to Citadel Securities data. A large hedge fund that borrowed money to bet on chip companies and other AI-related stocks was forced to liquidate much of its portfolio to pay lenders who asked for their money back. Several indicators show stock-market leverage has dropped meaningfully from the end of June, leaving chip stocks in a healthier position to rally with less extreme positioning, analysts said.

The broader market, meanwhile, powered higher. The Dow Jones Industrial Average rose 1.7%, or around 907 points, to a fresh record and its first close above 54,000. The S&P 500 added 1.8%, while the Nasdaq composite surged 2.6%, bringing its four-session gain to 8.8% and marking its best such run since April 2025. Upbeat results from companies including Caterpillar and Palantir helped power the rally.

Palantir reported fiscal second-quarter revenue of $1.94 billion versus expectations of $1.8 billion, with U.S. commercial revenue growing 149% year over year. The company raised its full-year revenue guidance to $8.16 billion from prior estimates of $7.65 billion to $7.66 billion.

The combination of huge earnings increases and recent stock declines means several big chip manufacturers look cheap by traditional valuation metrics. Memory-chip manufacturers Micron Technology and Sandisk are trading at six and seven times their projected earnings over the next 12 months, respectively, compared with 20 times for the S&P 500.

"Nvidia and TSMC now trade at a discount to the S&P 500 despite being the most critical businesses to the AI build-out," Baqui said.

ON Semiconductor reported a profit beat after the close Monday, but shares traded little changed in the following session. Sandisk, reporting Wednesday, is expected to post a profit of $5.26 billion, a year after taking a $23 million quarterly loss. Investors will need to wait until the end of the month for results from Nvidia, the world's most valuable company.

Analyst estimates for the sector's full-year revenue and profit growth have plateaued at a very high level over the past month, but there haven't been any other notable declines in chip-stock fundamentals, Ed Yardeni, president of Yardeni Research, wrote to clients Thursday.

This article is for informational purposes only and does not constitute investment advice.