Major semiconductor stocks experienced a dramatic reversal on Thursday, with the VanEck Semiconductor ETF (SMH) plunging over 5% after ending its strongest quarter on record. According to The Economic Times, memory chip maker Micron led the losses with a 11% tumble, while Intel fell 9% and Advanced Micro Devices (AMD) declined 7%. The sell-off came just a day after the semiconductor index had surged 71% between April and June as investors aggressively bought companies expected to benefit from the artificial intelligence boom. The three companies had collectively added nearly $2 trillion in market value during the second quarter as investors broadened their AI bets beyond Nvidia, expecting rising demand for memory chips and central processors to support future growth.
The sharp reversal was triggered by reports suggesting that Meta Platforms may rent out excess AI computing capacity, raising concerns that rapid expansion of AI infrastructure could eventually lead to excess supply. As reported by The Economic Times, this development fuelled speculation that AI computing capacity may be catching up with demand, prompting investors to reassess lofty valuations across the semiconductor sector. Interestingly, Meta's shares moved in the opposite direction, rising more than 9% after the development was viewed positively by investors. The company is among the largest spenders on AI infrastructure globally, investing billions of dollars annually in data centres and computing hardware. Analysts at KeyBanc Capital Markets said the move could help Meta expand into the enterprise AI market and generate quicker returns from its infrastructure investments.
The selling pressure spread beyond major chipmakers to semiconductor equipment makers, with Lam Research, KLA Corp., and Applied Materials all falling at least 10% despite more than doubling during the second quarter. According to The Economic Times, these companies had been among the biggest winners from the AI rally, with investors aggressively buying companies expected to benefit from the artificial intelligence boom. The weakness highlights growing volatility in AI-related stocks after an extraordinary rally, with investors becoming increasingly selective as they look for clearer evidence that massive investments in AI infrastructure will translate into sustainable earnings growth.
Despite recent declines, chip and memory stocks remain on track for their strongest quarterly performance on record. As reported by Bloomberg, the semiconductor index had surged 71% between April and June, marking its strongest quarterly performance on record. The index had been up 81% in the second quarter and was positioned to post its strongest quarterly performance on record, with one trading session remaining. The index has surged 94% so far in 2026 and, if gains hold, will mark its best annual performance since the dot-com boom in 1999. In comparison, the tech-heavy Nasdaq 100 has gained 25% during the quarter, while the broader S&P 500 has advanced 14%. In South Korea, the Kospi index is up 125% this year, its strongest first half since at least 1990, with Samsung and SK Hynix driving much of that increase.
Despite Wednesday's sell-off, many market participants continue to remain constructive on large technology companies investing heavily in AI. According to The Economic Times, Richard Saperstein, chief investment officer at Treasury Partners, said he continues to favour hyperscalers, arguing that their earnings growth remains strong even as valuations have moderated due to concerns over heavy capital expenditure. The latest rally continues to be driven by robust AI demand, with technology giants including Microsoft, Amazon, Alphabet, and Meta Platforms maintaining aggressive capital expenditure plans to expand AI and data centre infrastructure. However, the semiconductor industry's highly cyclical nature suggests that such turbulence is not unusual, with the sector historically experiencing periods of rapid expansion followed by sharp corrections. The recent selloff has also affected broader markets, with investors questioning whether the tech-heavy Nasdaq will continue to drive global economic growth.
