Chip Stocks Lead Global Market Selloff

The Semiconductor Selloff Deepens

The artificial intelligence trade has finally encountered its biggest test of 2026.

Global semiconductor stocks suffered a sharp selloff as investors reassessed lofty valuations, questioned the sustainability of the unprecedented AI investment cycle, and weighed the growing competitive threat from the rapidly advancing semiconductor industry in China. ¹ The decline quickly spread across global equity markets, reigniting fears that one of the strongest bull markets in technology history may be entering a more volatile phase.

While today’s move may appear dramatic, it also highlights an important change in market psychology. For much of the past two years, investors rewarded virtually every company exposed to artificial intelligence. Now, the market is asking a much tougher question: whether current share prices already discount years of perfect execution.

The AI Favourite Trade Finally Stumbles

In Asia, South Korea’s Kospi plunged as much as 11%, with memory giants Samsung Electronics and SK Hynix losing more than 13%, while Taiwan and Japan also experienced broad-based weakness across their technology sectors.¹

The MSCI World Semiconductor Index has now fallen roughly 13% during July, marking its worst monthly performance since 2022 despite remaining significantly higher for the year.¹

The weakness is evident in the US market as well. Nvidia suppliers and semiconductor manufacturers including AMD, Intel, Western Digital, Sandisk and Seagate are all trading lower in July as investors have been reducing exposure to one of the most crowded trades on Wall Street.²

The selling pressure is evident in Europe too, with ASML continuing its recent decline following reports that a Chinese state-backed company had begun mass-producing advanced immersion deep ultraviolet (DUV) lithography machines, technology previously dominated by Western manufacturers.³

Why Investors Are Suddenly Worried

The selloff appears to be driven by investors reassessing the price they are willing to pay for future growth.

For nearly two years, semiconductor companies have enjoyed near-perfect market conditions. Explosive demand for AI infrastructure, record capital expenditure by hyperscale cloud providers and rapidly expanding profit margins drove valuations to historically elevated levels.⁴

When positioning becomes this crowded, investors don’t need a fundamental catalyst to reduce risk, they simply need an excuse to lock in profits. Today’s selloff reflects a reassessment of how much investors are willing to pay for future AI-driven growth, rather than a deterioration in the long-term investment case. The AI theme remains firmly intact, but after an exceptional rally, expectations had become almost impossible to exceed. When valuations price in near-perfect execution, even modest changes in sentiment can trigger disproportionately sharp corrections.

Several factors have combined to trigger today’s weakness:

1. Questions Over AI Spending Returns

The first concern revolves around whether the enormous AI investment cycle can continue indefinitely.

Technology giants including Microsoft, Meta, Amazon and Alphabet have collectively committed hundreds of billions of dollars towards AI infrastructure over recent years. Nvidia alone has announced infrastructure partnerships approaching US$750 billion, fuelling concerns that AI spending is becoming dependent on continuous financing rather than proven commercial returns.¹

Markets are beginning to question whether future revenue growth can justify such unprecedented capital expenditure.

2. Fears of Circular AI Funding

Another growing concern is the emergence of so-called “circular funding.”

Many AI companies now simultaneously act as customers, suppliers and investors within the same ecosystem. Semiconductor manufacturers fund AI developers, hyperscalers purchase chips while investing in AI startups, and those startups in turn purchase cloud infrastructure from the same companies financing them.

Such interconnected investment structures work exceptionally well while demand continues accelerating. However, should enterprise AI adoption disappoint, the same relationships could amplify losses across the industry.¹

3. China Is Narrowing the Technology Gap

The latest catalyst came from China.

Reports that a state-backed Chinese company has begun mass production of immersion DUV lithography equipment have renewed concerns that China’s semiconductor industry is progressing faster than many Western investors previously assumed.⁴

At the same time, Chinese memory manufacturer CXMT has strengthened its balance sheet through a public listing to expand production capacity, potentially increasing global competition and placing downward pressure on memory chip pricing.¹

While China remains several years behind the most advanced EUV technology, investors are recognising that technological leadership may gradually become less concentrated.

Why the Nasdaq 100 Is Feeling the Pressure

The semiconductor industry has become the single most important driver of the Nasdaq 100’s performance.

Companies including Nvidia, Broadcom, AMD, Qualcomm, Micron and Intel now represent a substantial share of the index, while hyperscalers such as Microsoft, Amazon, Alphabet and Meta are among the largest purchasers of AI hardware.

Any slowdown in AI infrastructure spending therefore has a double impact:

• Semiconductor earnings expectations decline.
• The outlook for the largest technology companies also comes under pressure.

This explains why weakness in chipmakers typically produces an outsized reaction across the broader Nasdaq 100.

The AI ecosystem has become deeply interconnected, making semiconductors the highest-beta expression of the AI investment theme.

Is This the Start of a Larger Correction?

Investors should resist the temptation to conclude that the current selloff marks the end of the AI bull market.

The semiconductor sector has experienced several sharp pullbacks during 2026. Broadcom’s guidance earlier this summer and the market reaction to China’s rapidly improving large-language models both triggered significant corrections before buyers eventually returned.

What’s different this time is the speed and breadth of the decline.

Circuit breakers were triggered in South Korea, memory manufacturers that recently reported exceptionally strong earnings sold off aggressively, and losses spread simultaneously across Japan, Taiwan, Korea, Europe and the United States.¹

That combination suggests the market is undergoing a broader repricing of risk rather than responding to one isolated event.

Importantly, today’s decline is occurring despite record profitability across much of the semiconductor industry.

The concern is not the magnitude of the current correction; it’s that record profits did not stop it. The market is telling us the multiple, not the business, is the problem, reminding us that valuation resets rarely happen in a single trading session.

Earnings Will Decide the Next Move

The next two weeks are likely to determine whether the latest sharp decline proves to be a buying opportunity or the beginning of a much larger correction.

Microsoft, Meta, Amazon and other hyperscale technology companies are due to report earnings in the next two weeks, with investors focusing less on quarterly profits and more on future AI capital expenditure guidance.

If management teams reaffirm aggressive investment plans, confidence in semiconductor demand could recover quickly.

However, if executives begin signalling slower infrastructure spending or greater discipline around AI investment, markets may interpret that as evidence the AI spending cycle is approaching its peak.

Under that scenario, semiconductor valuations could compress further, dragging the Nasdaq 100 into a broader correction.

Technical Picture Points to Further Near-Term Weakness

From a technical perspective, momentum across the semiconductor sector has deteriorated steadily over recent weeks. Today’s sharp breakdown follows a month of steady declines, suggesting investors have gradually been reducing exposure.

Market positioning had also become one-sided. According to Citigroup positioning data, bullish exposure to Nasdaq 100 futures remained elevated heading into the latest decline, increasing the likelihood of forced selling once momentum reversed.¹

Although short-term downside risks have clearly increased, longer-term demand drivers such as AI inference, sovereign AI investment, enterprise digital transformation and accelerating memory demand remain firmly in place.⁴

Source: TradingView. Nasdaq 100 daily price chart as of 28 July 2026.

Outlook: Reset Rather Than Collapse

History suggests that secular technology bull markets rarely advance in a straight line fashion. The dot-com era, cloud computing revolution and smartphone cycle all experienced multiple corrections exceeding 15% before ultimately reaching new highs.

The AI supercycle is unlikely to be any different.

Unless upcoming earnings reveal evidence that enterprise AI demand is slowing materially, the selloff appears more consistent with a healthy valuation reset than the end of the AI investment theme.

For now, the market is questioning valuation. The companies reporting earnings over the coming two weeks are likely to determine whether investors remember this episode as another buying opportunity or the first meaningful correction in the AI supercycle.

Professional investors looking for magnified exposure to the Nasdaq 100 index may consider Leverage Shares +5x Long Nasdaq 100 or -5x Short Nasdaq 100 ETPs.

Footnotes:

1. Bloomberg, Chip Rout Deepens on Circular Funding, China Competition Fears, as of July 28, 2026.
2. Reuters, Chips jolted as momentum shifts in AI, as of July 28, 2026.
3. Reuters, Chip Rout Deepens on Circular Funding, China Competition Fears, as of July 28, 2026.
4. Reuters, China starts production of home-grown immersion DUV, as of July 28, 2026.