Chip stocks tumble as AI spending doubts spark extreme market swings

The semiconductor index tracked by the Philadelphia Stock Exchange fell 21% in July, its worst month since the 2008 financial crisis, with volatile daily moves and intraday swings not seen since 2020. Market participants are growing uneasy about whether the surge in AI-related capital expenditures can be sustained, especially as open-source AI alternatives reduce hardware demand. This uncertainty drove steep declines for all 30 constituents, with TSMC, Micron and Intel each shedding over $300 billion in market value, while a few leaders like Nvidia and Broadcom posted modest gains.

Hedge fund Situational Awareness was forced to liquidate billions in tech holdings to meet margin calls, highlighting the broader fallout. Despite the downturn, retail investors injected a historic $12 billion into semiconductor exchange-traded funds over five days, accounting for a quarter of all ETF inflows in that period. Analysts suggest a short-term buying opportunity but doubt chips will lead the next market rally.