JPMorgan says chip stocks oversold as RSI nears 30 level

Semiconductor stocks have fallen so far and so fast that their relative strength index is approaching levels that historically precede sharp relief rallies — and JPMorgan is telling clients to buy the dip.

JPMorgan Chase & Co. strategists led by Mislav Matejka said in a July 20 report that AI-related semiconductor stocks are unlikely to remain under pressure, citing strong earnings growth and valuation improvements that should re-stimulate demand. The call comes after a brutal sector-wide sell-off erased hundreds of billions in market value across chipmakers in recent weeks.

"The semiconductor stocks have decoupled from an improving earnings outlook," Matejka, head of global equity strategy at JPMorgan, said in the note. "Substantive supply growth won't arrive until 2028, so pricing a downturn now is premature. Fundamentals remain constructive."

The Philadelphia Semiconductor Index is headed for its worst weekly performance in more than a year, with Nvidia, Broadcom and Qualcomm each losing more than 2% in recent sessions while AMD, Intel and Marvell Technology fell over 3%. Intel has tumbled 22% over the past month, TSMC dropped 8.8% in a single week — its seventh consecutive daily decline — and Western Digital lost 10.8% in one day, wiping roughly $19.2 billion from its market capitalization.

The sell-off has pushed technical indicators deep into oversold territory. Intel's 14-day RSI stands at 32, TSMC's at 37.7, Western Digital's at 38.7 and Aixtron's at 34.1 — all approaching or below the 30 threshold that typically signals a stock is oversold. JPMorgan's strategists said that if hyperscale data-center operators maintain strong capital expenditure plans, investors should "re-enter the sector in summer."

The Capex Conundrum

The disconnect between fundamentals and stock prices is most visible in the tension between record earnings and swelling investment plans. TSMC posted a 77.4% surge in second-quarter net profit and revenue of $40.2 billion, up 36% year over year, yet its shares fell for seven consecutive sessions after the company raised its 2026 capital expenditure forecast to as much as $64 billion — at least $4 billion more than previously projected. The market interpreted the spending binge as a margin risk rather than a demand signal.

Western Digital presents a similar paradox. Its order books are locked through 2028, 2026 capacity is sold out, and cloud customers are signing multi-year contracts extending to 2027 and beyond. Revenue surged 45% year over year to $3.34 billion in the fiscal third quarter. Yet the stock sits 40% below its all-time high set just last month.

What's at Stake for Investors

For investors, the question is whether the current correction is a healthy reset within a secular uptrend or the beginning of a deeper reassessment of AI valuations. JPMorgan's thesis rests on two pillars: earnings growth that continues to accelerate, and a supply-demand imbalance that won't resolve for at least two more years. If hyperscaler CapEx — projected to exceed $5 trillion of the $7 trillion in global data-center spending by 2030 — holds up, the bank argues, the fundamental case for semiconductors remains intact.

The next major test arrives in the coming weeks. TSMC reports again in October, Western Digital delivers fiscal fourth-quarter results on Aug. 5, and Aixtron's half-year report is due July 30. Each will provide fresh data on whether the earnings momentum JPMorgan is betting on can overcome the market's cyclical fears.

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