NEW YORK: High-flying chip stocks struggled through one of their most challenging sessions of the year on Tuesday in a dramatic reversal for some of the market’s best performers.
Broadcom Inc, Intel Corp and Micron Technology Inc were among the five biggest point decliners in the S&P 500 Index and technology-heavy Nasdaq 100 Index.
Meanwhile, the Philadelphia Stock Exchange Semiconductor Index, which is up more than 60% in 2026, sank as much as 6.8%, its biggest intraday drop in over a year, before clawing back some of the decline to end down 3%.
“The sheer velocity of the move made people nervous, and trimming exposure after a climb like this is prudent risk management,” said Barry Knapp, managing partner at Ironsides Macroeconomics.
“I don’t see anything fundamental out there that has me thinking the earnings story is going to slow.”
The group is benefitting from heavy spending on artificial intelligence (AI) infrastructure, with chips - notably those used for processing and memory - a critical part of the buildout.
Intel, which has soared 227% in 2026, and Micron, up 169%, are among the top six stocks in the S&P 500 this year.
“The historic rally in chipmakers couldn’t keep going forever,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group.
“This selloff was way overdue after an incredible run, but the pain will likely be short-lived because there’s still fear of missing out everywhere.”
Some investors are betting that the selloff will continue. The Direxion Daily Semiconductors bear three times exchange-traded funds (ETF), ticker Soxs, which pays three times the inverse return of the Philadelphia Semiconductor Index, jumped 9.2%.
Call options on the ETF, which amount to wagers against chip stocks, saw volume explode to 292,000 contracts on Tuesday afternoon.
“The move lower was broad-based, suggesting investors are likely taking profits ahead of this week’s meeting between the United States and China,” said Dec Mullarkey, managing director at SLC Management.
“Since chips have been at the centre of those negotiations, trimming positions provides some dry powder if there is volatility in the aftermath of the meeting.”
Just about every member of the semiconductor index finished lower, led by Qualcomm Inc’s 12% decline.
The lone chipmaker in the green was Nvidia Corp, which has lagged the group this year. The AI giant reports earnings next week.
“We will see an equal and opposite reaction to the parabolic advance we have seen in tech/semis/AI over the last few weeks,” Jonathan Krinsky, chief market technician at BTIG, wrote in a note to clients Tuesday.
He warned that the semiconductor index could fall roughly 20% as the rally looks stretched on overheated momentum.
Still, many Wall Street pros aren’t ready to throw in the towel on chipmakers just yet.
With the market awash in AI spending, the fundamental picture for these stocks remains strong, they said.
“I think the bulls are in charge until proven otherwise,” said Rhys Williams, chief strategist at Wayve Capital Management.
“Until the rest of the market can sort of broaden out or there’s other things that are investable, a lot of money will continue to pour into this sector.” — Bloomberg
