Chip stocks suffer worst stretch in 16 months as AI fatigue grips the market

By Hannah Pedone

Anticipation is building for Anthropic's investor day, as Wall Street grows less patient with heavy AI spending

Of the 30 chip stocks in the PHLX Semiconductor Index, 22 were more than 20% below their record highs on Tuesday.

Chip stocks haven't suffered a losing streak like this in almost a year and a half. The big question for investors is what can snap the semiconductor sector out of its doldrums.

First, it's worth looking at what's driven chip stocks lower across the past five sessions. Jefferies analyst Jeffrey Favuzza wrote in a Tuesday trading note that one of the biggest questions he has been getting from clients is "'why the weakness in AI?' across the board."

He believes that there are a number of factors at play, including recent commentary from Broadcom (AVGO) CEO Hock Tan about how capital, or funding, could the biggest bottleneck in the AI buildout. But perhaps the "bigger issue," according to Favuzza, is the anticipation and uncertainty around Anthropic's investor day, reportedly on tap for Wednesday.

He wrote that most investors are looking to see upward of $80 billion in annual recurring revenue from Anthropic.

Semiconductor investors are clearly on edge heading into the event, although the worries go deeper. The iShares Semiconductor exchange-traded fund SOXX, a proxy for chip stocks, closed lower on Tuesday for the sixth consecutive trading day to seal its longest losing streak since May 23, 2025, according to Dow Jones Market Data. Meanwhile, 22 of the 30 stocks in the PHLX Semiconductor Index SOX were off more than 20% from their record highs, nearly all of which were achieved in May or June.

While shares of SK Hynix (SKHY) aren't in that index, the stock has been one of the sector's biggest laggards recently. The stock closed lower for the seventh consecutive trading day on Tuesday, losing 19.5% over that period. And Applied Materials (AMAT) was the worst performing stock in the S&P 500 SPX in Tuesday's action, falling for the sixth session in a row, as the company's investor event failed to excite Wall Street.

Daniel O'Regan, managing director for equity trading at Mizuho, wrote in a note that over the past several weeks, there has been growing evidence that investors are "becoming less willing to fund AI-related spending at any price."

He wrote that capital spending on AI has outpaced free-cash-flow generation, meaning that companies have needed to tap external financing for hardware purchases. If that financing gets tougher to come by, it could dent spending on chips and other forms of AI infrastructure.

See also: The murky AI milestone that has some of the industry's leading voices increasingly on edge

-Hannah Pedone

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10-13-26 1702ET