Thomas White
Co-HostSemiconductor Stocks Rebound to Lead Stock Recovery
Thomas White
Co-HostSemiconductor stocks have staged a powerful recovery after the deep July selloff that erased more than $1 trillion in market value across the industry.
The PHLX Semiconductor Index (SOX) was up 86% in 2026 to its all-time high in late June before falling 29% to its recent lows last week. Investors bought back into the sector after strong technology earnings and renewed confidence that artificial intelligence spending remains intact. The VanEck Semiconductor ETF (SMH) is up 14% over the last four sessions as of Tuesday’s close after falling 25% from its all-time high in late June. The chip stock rally was led by rebounds in Nvidia (NVDA), AMD (AMD), memory chip makers, and semiconductor equipment companies.
So what caused the fears and what is the outlook for investors? The July selloff stemmed from a few factors including the sector had a parabolic move in the first half of the year.
Investors may have thought the peak was in the semiconductor stocks. Valuations expanded well above historical levels, and investor profit-taking potentially came into play. Investors also questioned whether hyperscaler spending could continue growing at its recent pace. Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Meta Platforms (META) all confirmed their CapEx plans for this year and added that spending will continue to increase in 2027. This gave a much-needed boost to the semiconductor stocks as AI-related demand is accelerating and not peaking.
The hardest hit group was the memory sector, including Micron (MU), Sandisk (SNDK), Western Digital (WDC), and Seagate Technology (STX) domestically, along with South Korean names SK Hynix (SKHY), and Samsung (SSNLF). Investors worried about a potential slowdown in memory demand and price hikes, while some questioned whether the current memory upcycle could be sustained. Adding to the slide in the sector was the volatility in the South Korean markets. SK Hynix and Samsung stocks make up roughly about 60% of the South Korean Kospi Index and the selloffs created retail angst. This led the government to put in restrictions on leveraged ETFs along with guardrails for retail trading. Micron, Sandisk, Western Digital and Seagate are still 26% to 40% off of their respective all-time highs but have bounced over the last few sessions.
The recent stabilization and rebound of the chip stocks highlights that the recent correction appears to have been driven more by profit-taking, positioning, and valuation concerns than by a collapse in semiconductor fundamentals. AI servers, advanced memory, GPUs, CPUs, and semiconductor manufacturing equipment remain integral to the ongoing AI buildout. The spending by tech companies continues to surge, suggesting the sector's long-term growth story remains intact despite near-term volatility.
The overall market has applauded the semiconductor rally with the S&P 500 Index (SPX) and Dow Jones Industrial Average Index ($DJI) settling at record highs on Tuesday. The drop in Advanced Micro Devices (AMD) shares today may put pressure on the semiconductor sector. The stock was trading lower despite an earnings beat with revenue growing 50% on a year-over-year basis. The stock is up 142% this year and was only 11% off its all-time high from July, so the bar was high going into the report.
The bottom line is the semiconductor selloff was fueled by profit-taking, valuation concerns, and fears that AI spending may have peaked. A majority of the stocks in the sector had parabolic moves in the first six months of the year, so the pullback was exacerbated to the downside. The recent rebound may suggest investors are comfortable that the tech and AI infrastructure cycle has room to run.
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