July 17 (Reuters) – A brutal week for chip stocks — the same names that fueled this year’s blistering market rally — has left investors from Seoul to Silicon Valley asking whether the AI boom became over-leveraged and got ahead of itself.
Investors from Asia to Europe pulled back from AI-exposed stocks and so-called momentum names that had powered portfolio returns through much of this year.
The Philadelphia SE Semiconductor Index (.SOX), opens new tab dropped 1.6% on Friday. For the week, it sank about 10%, its largest weekly fall in over a year. The index ended Friday down just over 20% from its late-June all-time high, a move that confirms it has been in a bear market.
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“The pullback reflects profit-taking and rising scrutiny of AI capex sustainability,” said Toni Meadows, head of investment at BRI Wealth Management. “Valuations in semiconductor 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 remains up more than 60% for the year.
“I don’t think it has really anything to do about fundamentals as much as just repositioning of portfolios and just taking profits in stocks that have gone crazy,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
