A closely-watched index of semiconductor stocks is set to fall into a bear market, unwinding a chunk of the blistering memory-led rally that saw the gauge more than double in just three months.
The Philadelphia Semiconductor Index, better know as the SOX, shed as much as 5.7% Friday, bringing its drawdown from a late June record high to more than 20%, below the technical threshold that indicates a bear market. The 30-stock chip benchmark had soared 105% between its March low and last month's peak. Shares of Marvell Technology Inc., ARM Holdings Plc, and Intel Corp. have all plunged more than 30% over that span.
“I think it is obvious that the price momentum has outpaced fundamental momentum, even though fundamentals are still positive and still moving in a positive direction,” said James Abate, managing director and head of fundamental strategies at Horizon Investments, who added that the chip index “basically had a parabolic move” prior to the reversal.
Photo Credit: Bloomberg
Friday's selloff came in the wake of a surprise breakthrough from Chinese AI startup Moonshot, who said its new Kimi K3 model rivals the strongest offerings from OpenAI and Anthropic PBC. A Bloomberg gauge of Asian semiconductor stocks slid more than 6%, with investors likening the decline to the market shock unleashed by DeepSeek's breakthrough last year.
Renewed concerns over the health of the artificial intelligence trade, and whether hyperscalers will be able to continue to pour trillions of dollars into capital expenditures on infrastructure have driven the selloff. Investors are also grappling with the elevated valuations, and if stocks have run up too far, too fast.
“Even though fundamentals are strong, expectations got too far ahead of where the fundamentals are,” said Muneeb Muzaffar, senior portfolio manager at Bold Wealth Partners. “Multiples were pricing in a blue-sky scenario, and that led to the question of, was the best part of the story already priced in? What are people willing to pay for chip earnings, and is there a chance those expectations are drawn back?”
Key reads on the AI trade will arrive over the upcoming weeks, as major spenders report their quarterly results. Alphabet Inc. is among the first notable names, with results due after the market close on July 22. Microsoft Corp., Amazon.com Inc., and Meta Platforms Inc. are all scheduled to report the following week.
“The market does need to become more comfortable with the ROI for hyperscalers, but as that spending gets justified, they will continue to spend, and then chip companies will make money,” Muzaffar said. “But the picture right now is a little complicated, when you lay in valuations and sentiment and flows on top of the positive fundamental picture.”
Shares of memory chipmakers, some of the highest fliers this year, haven't been immune from the decline either as questions swirl over when supplies will finally be able to catch up with skyrocketing demand and what sort of impact that will have on ballooning profits.
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Micron Technology Inc. shares have slumped 33% from their peak, while Western Digital Corp. and Sandisk Corp. have both fallen more than 40%. Samsung Electronics Co. plunged in early July after the South Korean firm reported a 19-fold surge in quarterly profits, an increase that wasn't enough to satisfy investors after a 150% stock rally to begin the year.
Taiwan Semiconductor Manufacturing Co., the main chipmaker for Nvidia Corp., faced a similar fate this week after raising both its spending and revenue projections for the year. Its shares slid more than 7%, bringing their decline from a record to nearly 9%.
Of course, the SOX is still up 65% this year, far outpacing a 9.4% gain by the broader market. And analysts remain overwhelmingly bullish, projecting the gauge will return roughly 34% over the next 12 months, according to a bottom-up aggregate of analyst price targets for the benchmark's 30 stocks.
Horizon's Abate urged investors to keep their wits about them amid the selloff. “Even if we're down 20%, we're only back to where we were in May, so let's not go crazy,” he said.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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