Semiconductors Face a Critical Test as AI Trade Comes Under Pressure
The past two months have been among the most turbulent of the year for the semiconductor sector. The sell-off began with Broadcom’s earnings report on June 3: an AI outlook that failed to impress investors wiped out more than $1.3 trillion in market capitalization in a single day, while Nvidia lost its $5 trillion valuation milestone.
On July 2, the sector suffered its worst two-session decline of the month, driven by concerns over a potential peak in memory prices and the threat of cheaper Chinese AI models reducing demand for hardware. Another leg lower followed on July 8, this time fueled by doubts over the sustainability of AI capital expenditure and a more cautious Federal Reserve stance on interest rates. On July 16, TSMC exceeded expectations but raised its spending outlook, and the market interpreted the higher investment requirements as another warning sign. Only in the past few days have financial headlines started to point toward a potential rebound.
Ahead of a week packed with major technology earnings reports—with Intel reporting today—and with artificial intelligence remaining the market’s primary driver, the key question is how healthy the semiconductor sector really is. Our proprietary scores provide a framework to assess it.
The Price Has Not Yet Caught Up With the Deteriorating Fundamentals
The current picture of the semiconductor index, tracked through the VanEck Semiconductor ETF (SMH), shows an overall health score of 43.6 out of 100, placing it in the 19th percentile of its 15-year history—weak, but not at an extreme level.
Beneath the surface, however, the components of the score tell very different stories. The underlying trend remains technically positive, but momentum is weak and deteriorating across all time horizons: down 12% over the past month, despite still being up 29% over three months. Trading volume has declined consistently across short-, medium-, and long-term periods, while volatility remains elevated.
This creates the first major divergence worth highlighting.
The price has not yet followed the score lower.
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