Why highflying chip stocks are suddenly losing their luster

By Christine Ji

After a record-breaking quarter, semiconductor stocks are seeing their valuations come under scrutiny

The iShares Semiconductor ETF has fallen 16% from its historic late-June peak.

After powering the artificial-intelligence trade for much of this year with their record run, semiconductor stocks have hit a roadblock.

The PHLX Semiconductor Index SOX fell 4.7% on Tuesday, dipping below its 50-day moving average for the first time since April. Meanwhile, shares of the iShares Semiconductor ETF SOXX have fallen 16% from their late-June peak.

The selloff comes after the SOX index notched its best quarter on record, gaining nearly 90% in the three months that ended June 30. Now, investors are "reassessing whether the valuations being assigned to some of these companies are warranted after their run-up," Mike Reynolds, vice president of investment strategy at Glenmede, told MarketWatch.

Shares of Intel (INTC) fell 11% on Tuesday, while shares of Advanced Micro Devices (AMD) fell 8% and Micron Technology's stock (MU) tumbled 7%.

Shares of Samsung Electronics (KR:005930) slumped 7% on Tuesday, despite preliminary second-quarter results showing that sales more than doubled and profits increased over 19-fold on a year-over-year basis.

Samsung, along with Micron and SK Hynix (KR:000660), has become a critical part of the AI trade amid a severe memory-chip bottleneck. However, high expectations were priced into Samsung's print and investors were anticipating an earnings beat of a larger magnitude, Gabelli Funds analyst Hendi Susanto told MarketWatch.

Reports of Chinese AI firm DeepSeek developing its own chips added further fuel to the selloff on Tuesday. Shares of Nvidia (NVDA) dipped initially on fears that the chip giant could lose its dominant market position, but ended Tuesday's session up 0.6% as the only SOX constituent in the green.

Representatives from Nvidia and DeepSeek did not immediately respond to MarketWatch requests for comment.

Skepticism surrounding high levels of AI spending are also flaring up again, Reynolds noted.

"The expectation of the adoption curve looks like it may be overly optimistic, which has implications for the amount of investments that may be made that would rely on chips as as a big part of that, whether it be data centers or other types of compute," he said.

Semiconductors are going through a "transitory period marked by volatility," Susanto told MarketWatch, adding that catalysts like upward earnings revisions will likely not occur in the near term.

"For memory, capacity additions will arrive in 2027, not 2026," he said, as memory-chip companies are sold out of their 2026 inventories.

-Christine Ji

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07-07-26 1725ET