A global rout in semiconductor and artificial intelligence stocks intensified Friday as investors increasingly questioned whether AI spending can justify sky-high valuations, while also grappling with what a resurgence in oil prices means for inflation and interest rates. Memory chip stocks were among the hardest hit. Taiwan’s TSMC shed 7 percent despite second-quarter earnings released Thursday that analysts described as strong, while Europe’s BE Semiconductors and STMicroelectronics both lost more than 5 percent. In the US market, Micron Technology, SanDisk, and Intel were all sharply lower. The selling marks a stark reversal of what had been a relentless AI momentum trade, one that pushed memory stocks to massive triple-digit gains over the past year.
Neil Wilson, UK investor strategist at Saxo, characterized the selling as a rotation story rather than a broader exit from equities, with investors moving from massively overweight tech positions and into energy, staples, and real estate. The shift comes as deterioration in the fragile ceasefire between the United States and Iran has sparked a surge in oil prices, with Brent crude rising to $85 a barrel. Barclays analysts noted that softer June Consumer Price Index data has eased pressure on the Federal Reserve for near-term rate hikes, but warned that a rebound in oil prices means inflation risk hasn’t entirely gone away.
The Philadelphia Semiconductor Index, which tracks major US chip companies, is down roughly 8.5 percent this week, its sharpest weekly decline since President Donald Trump’s tariff announcement sent stocks tumbling in April. The index is now down 19 percent from its record high last month. Michael Field, Morningstar’s chief European market strategist, noted that being close to 20 percent off the top technically puts chipmakers in bear market territory, which could trigger further selling. South Korea’s Kospi, a bellwether for the memory trade, fell 6.4 percent Friday led by losses at SK Hynix and Samsung of 11 and 7 percent respectively.
Perhaps most striking is that the selloff has come even as major tech names report earnings that beat expectations. Firms like ASML and Taiwan Semiconductor have been punished by the market despite solid results, as investors query their bumper capital expenditure plans. Barclays analysts, led by head of European equities strategy Emmanuel Cau, said the disconnect between positioning and fundamentals is becoming more evident, as early second-quarter results point to continued strength in the underlying story. Joe Mazzola, head trading and derivatives strategist at Charles Schwab, wrote Thursday that consecutive pullbacks despite strong guidance could mark an ominous sign for investors bracing for an acceleration of tech results starting next week.
Paul Jackson, global market strategist at Invesco, suggested the AI theme is creating successive stock market tsunamis as it works through the supply chain, leaving investors to wonder whether the theme has run its course or whether another wave will hit a different part of the chain.