Chipmakers and other high-flying stocks slide as AI trade wobbles
Market Volatility and the AI Trade
Semiconductor Stocks Lead the Decline
July 17 (Reuters) - A rotation out of the biggest winners of the recent rally gathered momentum this week, sending chip stocks toward their steepest weekly decline in more than a year and sparking fresh concerns about the sustainability of the AI-driven surge.
The jitters in semiconductor stocks were felt from Seoul to Europe as investors pulled back from AI-exposed stocks that had powered portfolio returns through much of this year.
The Philadelphia SE Semiconductor Index is down 11% this week, which would mark its largest one-week fall since March 2025, if current levels hold. The index was down nearly 24% from its late June all-time high, on pace to confirm it has been in a bear market.
Profit-Taking and Valuation Concerns
"The pullback reflects profit-taking and rising scrutiny of AI capex sustainability," said Toni Meadows, head of investment at BRI Wealth Management.
"Valuations in semi-conductor stocks had priced near-perfect demand, for what has been a cyclical area in the past, so was always going to leave stocks vulnerable at some point in what has been a rapid rise."
The chip index has climbed nearly 60% for the year, as of early trading on Friday.
Major Chipmakers and Related Stocks
Shares of Nvidia fell 3.4%, while Advanced Micro Devices slid 4.9% and Applied Materials fell 6.5%. Memory chip darlings Micron and SanDisk shed around 1% each.
SpaceX dropped 4.5%, as a last-second abort of Starship's 13th flight test piled more pressure after slipping below the $135 per share IPO price earlier this week.
SK Hynix's U.S.-listed shares briefly dropped below their offering price, before reversing losses to trade 4% higher. The stock has lost more than 5% this week.
Factors Behind the Market Reversal
Analysts have highlighted several reasons for this month's sharp reversal.
AI Developments and Delays
Chinese AI startup Moonshot unveiled Kimi K3, a 2.8 trillion-parameter model that it said is the world's largest open-weight AI system, rekindling investor scrutiny of the pace of potential returns from hefty AI investments by U.S. tech companies.
A report on Thursday suggested Alphabet's Google is months behind schedule on the release of Gemini 3.5 Pro, its most powerful flagship AI model.
Global Market Movements
Traders globally have had a volatile start to July. South Korea's KOSPI index confirmed a bear market last week, while still being up nearly 62% for the year. Japan's Nikkei tumbled into correction territory on Friday.
Europe's tech sector is among the top sectoral losers this week, after having notched its biggest quarterly jump since 2001 in June.
Momentum Index and Broader Market Impact
After outperforming the benchmark S&P 500 by more than two-to-one this year, the S&P 500 Momentum Index has pulled back 10% in July, compared to a 0.8% drop in the broader market.
Looking Ahead: Earnings and Sector Outlook
Strong forecasts from the world's largest chip manufacturer, Taiwan's TSMC, and European semiconductor equipment maker ASML did little to halt the slide.
The focus now shifts to earnings reports from two of Wall Street's so-called 'Magnificent Seven' group. Alphabet and Tesla are scheduled to announce quarterly earnings next week, along with semiconductor company Intel.
Space Stocks and Broader Sector Performance
Space stocks were also down this week after rallying earlier this year in anticipation of the potential boost to the sector from SpaceX's debut.
Intuitive Machines slipped 1.6% and Virgin Galactic lost 2.3% on Friday and were set to log losses this week.
Reporting Credits
(Reporting by Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Sriraj Kalluvila)
