Momentum stocks slide 15% in July as history backs dip buyers

Semiconductor and AI infrastructure momentum stocks fell as much as 15% in July, the sector's sharpest pullback since late 2024, as investors rotated out of high-beta growth names.

"The historical pattern across five similar drawdown events since 2010 is remarkably consistent — each was followed by a positive return within 12 months, with a median gain of 38%," according to an analysis of Cadence Design Systems, a semiconductor design software company whose stock is down about 15% from its recent high.

The analysis tracked five occasions since 2010 where CDNS fell at least 20% within a 30-day window. In every case, the stock recovered to post a positive return over the following year. The median worst-case scenario for dip buyers was an additional 5% decline before the recovery began. The median time to peak return after a dip event was 354 days.

The selloff in momentum stocks comes as investors reassess the durability of AI-driven revenue growth after a prolonged rally. Cadence, which raised its 2026 revenue growth outlook to 17% and reported a record backlog of $8 billion, grew revenue 13.4% over the past year with an operating cash flow margin of 29% — fundamentals that support the dip-buying thesis, according to the analysis.

Semiconductor Selloff Spreads Beyond CDNS

The drawdown extended beyond individual names. The Invesco S&P SmallCap 600 Revenue ETF, which holds a 16.4% weighting in industrials and 17.3% in technology, posted a 1-year return of 34.14% as of July 17 but carries a 5-year maximum drawdown of 38.33%, according to fund data. The broader SPDR S&P 600 Small Cap Growth ETF, with a 19% weighting in industrials and 17.7% in technology, showed a lower 5-year max drawdown of 29.17% and a 1-year return of 27.31%.

What History Says About the Next 12 Months

The five CDNS dip events occurred in March 2025, January 2024, January 2022, March 2020, and August 2011. The median 1-year return after these events was 38%, with a median peak return of 52% reached in about 354 days. The worst drawdown among the five — the March 2020 Covid selloff — produced a 121% return over the following 12 months.

For investors considering buying the dip, the key question is whether the underlying business remains intact. Cadence's fundamentals — 13.4% revenue growth, a 29% operating cash flow margin, and an $8 billion backlog — suggest the company's AI-driven design software business is not broken, according to the analysis.

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