Chip stocks rebound 10% as traders pile into record hedging activity

The semiconductor sector's $1.3 trillion rout triggered the heaviest put buying on record, as traders stay long but refuse to go uninsured.

The Philadelphia Semiconductor Index bounced 10.3% on Monday after Friday's worst single-day selloff since 2020, but options data shows traders are buying protection at a record pace rather than calling the all-clear.

"The gap between SMH implied volatility at 46 and the VIX at 17 creates a natural hedge trade — sell expensive chip volatility, buy cheap broad-market protection," a derivatives strategist at a major Wall Street bank told CNBC.

Open interest in put contracts on the VanEck Semiconductor ETF (SMH) surged to just under 1.7 million, the highest since the fund's 2011 launch, according to Bloomberg data. The volume indicates puts are mostly being bought, not sold — traders are paying for downside insurance rather than betting on a collapse. Micron surged 10% Monday after losing 13% on Friday, while Marvell jumped 9% on news of its addition to the S&P 500.

The tension between a 10% rebound and record hedging reflects a market that believes in the AI infrastructure buildout — hyperscalers are spending more than $600 billion this year — but recognizes that valuations have left no room for error. Nvidia's Vera Rubin platform enters production this quarter, with deliveries expected in the third quarter. Any supply-side hiccup in HBM4 memory or advanced packaging could trigger another sharp move in either direction.

What Triggered the $1.3 Trillion Rout

Friday's selloff was sparked by Broadcom's AI revenue miss — a 14% shortfall against elevated expectations that cascaded across the sector. Nvidia fell about 6%, shedding roughly $740 billion in market value, while AMD dropped 10.9% and Intel fell 11.3%. The damage was concentrated in names that had rallied the hardest: Intel was up 169% year-to-date before the drop, and AMD was up 118%.

Jensen Huang told investors not to panic, saying the selloff gave them "a chance to buy at a discount" and arguing that the AI buildout remains in its early innings. Samsung and SK Hynix, which supply the HBM4 memory Nvidia's next-generation systems require, also sold off heavily in Asian trading before stabilizing.

Record Put Buying Signals Caution, Not Capitulation

The record put buying reflects a market that has not abandoned chip stocks but is unwilling to hold them without protection. Implied volatility on SMH sits at 46, more than 2.5 times the S&P 500's VIX at roughly 17. That gap has created a popular hedging trade among institutional investors: sell expensive semiconductor volatility and buy cheap broad-market protection.

The fundamental demand story has not changed. Nvidia's data center revenue grew 93% year-on-year in its most recent quarter, and hyperscaler capital expenditure continues to accelerate. But a 14% revenue shortfall at Broadcom, in an AI segment that still grew substantially, was enough to erase $1.3 trillion in a single day. That is the definition of a market priced for perfection.

Marvell Emerges as a Bullish Outlier

As the hedging flurry unfolded, traders placed concentrated bullish bets on select semiconductor winners. Marvell Technology emerged as a standout after Nvidia CEO Jensen Huang shared the stage with Marvell CEO Matt Murphy at COMPUTEX 2026 and called Marvell the "next trillion-dollar company." The stock surged 30% in a single session to all-time highs near $280, swelling its market cap to almost $240 billion.

Marvell's data center revenue reached $1.83 billion in its fiscal first quarter, now accounting for 76% of total revenue. The company raised its fiscal 2028 revenue forecast to $16.5 billion, up $1.5 billion from prior guidance. Its Teralynx 100 switch chip, capable of 102.4 terabits per second, positions it as a direct challenger to Broadcom and AMD in the networking layer that underpins AI clusters.

For investors, the divergence between record hedging and selective bullish bets signals that the semiconductor trade has become a stock-picker's market where valuation discipline matters. Marvell trades at a forward P/E above 90, pricing in years of flawless execution. Nvidia, at roughly 35x forward earnings, faces the opposite risk — any earnings miss could trigger another $1 trillion-plus rout. The options market is priced for continued volatility, and the next test comes when Nvidia's Vera Rubin platform begins shipping in the third quarter.

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