The SOX endured a brutal July, falling 21% from its late-June peak and, at its worst, entering bear market territory with a plunge approaching 30%. The selloff reflected the much discussed broad unwind of the AI trade as investors questioned the returns on enormous AI infrastructure spending. Sentiment deteriorated at the end of July following reports that Anthropic was developing its own AI chip, SK Hynix suffered its worst one-day decline in 18 years due to leverage unwind, and evidence emerged of China’s rapid advances in chipmaking, fuelling concerns over intensifying competition for Western semiconductor leaders.
- We are now cautious having seen what BYD et al have done to the EV and overall car market, why not chips?
July’s weakness spread across the sector, with Intel, Marvell and Applied Materials all falling more than 20% during the month, while AI leaders Nvidia, AMD and TSMC also posted sharp losses. The sector recovered some ground into month-end after strong results from Microsoft and Amazon restored confidence that AI investment is translating into earnings growth, although the rebound only partially offset July’s heavy losses.
- We are openminded that the correction may only be a pause in the AI Trade, rather than a fundamental break in the long-term AI investment thesis, but China could become a formidable foe.
