Key Takeaways
- Memory chip stocks are leading a sharp selloff in AI-related names.
- The shift marks a reversal of the AI momentum trade, which has seen market leaders push to new highs.
- Investors appear to be shifting out of these tech names and into other areas of the stock market that had been lagging.
A global rout in semiconductor and other artificial intelligence stocks intensified Friday as investors questioned whether AI spending can justify exorbitant valuations while pondering what a resurgence in oil prices means for inflation and interest rates.
Memory chip stocks were among the biggest decliners Friday. Shares of Taiwan’s TSMC 2330 shed 7% despite second-quarter earnings released Thursday that analysts deemed strong, while Europe’s BE Semiconductors BESI and STMicroelectronics STMPA both lost more than 5%. In the US market, Micron Technology MU, SanDisk SNDK, and Intel ITNC were all seen sharply lower.
The shift marks a reversal of the “AI momentum trade”, in which investors bet on further gains for the market’s AI leaders. Memory stocks in particular have seen massive gains over the past year, well into the triple digits.
Neil Wilson, UK investor strategist at Saxo, described the selling as a “rotation story,” rather than a broader equity exit, with investors moving from “massively overweight tech and into energy, staples, real estate.”
It comes as a deterioration in the US and Iran’s fragile ceasefire has sparked a surge in oil prices, with Brent crude rising to USD 85 a barrel. Barclays analysts said that softer June Consumer Price Index data has taken pressure off the Federal Reserve for near-term interest rate hikes, but added that a rebound in oil prices means “inflation risk hasn’t all gone away.”
The Philadelphia Semiconductor index, which tracks major US chip companies, is down around 8.5% this week, its sharpest weekly decline since President Donald Trump’s tariffs announcement sent stocks tumbling in April 2025. The chip index is now down 19% from its record high last month.
“We’re now close to being 20% off the top, which technically means we’re in a bear market for chipmakers, which could cause further selling,” says Michael Field, Morningstar’s chief European market strategist.
South Korea’s Kospi, a bellwether of the memory trade, fell 6.4% Friday, led by losses for chipmakers SK Hynix 000660 and Samsung 005930 of 11% and 7%. The Kospi is now down around 25% from its peak but still up 60% year to date.
Through June 22, the Morningstar Global Semiconductors Index was up nearly 61% year to date and nearly 92% for the prior 12 months. Since then, the index has lost more than 12% in US dollar terms.
Stocks Slide Despite Strong Earnings
The momentum unwind comes as major tech names have begun reporting second-quarter earnings. Despite beating expectations, firms such as ASML ASML and Taiwan Semiconductor have been punished by the market as investors query their bumper capex plans.
“The disconnect between positioning and fundamentals is becoming more evident, as early Q2 results point to continued strength in the underlying earnings story. Both ASML and TSMC largely exceeded expectations and reiterated confidence in AI-related demand,” say Barclays analysts, led by head of European equities strategy, Emmanuel Cau.
“But we flagged in our second quarter preview that elevated positioning in AI leaders raised the risk of some travel & arrive patterns, which has been confirmed so far,” they add.
Joe Mazzola, head trading and derivatives strategist at Charles Schwab, wrote Thursday the consecutive pullbacks despite solid earnings and guidance could mark an “ominous sign” as investors brace for tech results to accelerate from next week.
This week’s selling marks the latest in a series of road bumps for the much-hyped AI trade. US hyperscalers, or data center developers, have lost momentum in the past year following their record run, while their suppliers have been among the next to be hit.
“It feels as though the AI theme is creating successive stock market tsunamis as it works its way through the supply chain,” says Paul Jackson, global market strategist, EMEA at Invesco. “The question is whether the theme has run its course or whether there is another tsunami that will hit another part of the supply chain.”
