The VanEck Semiconductor ETF (SMH) is trading near $569 as chip stocks extend a sharp decline that has wiped out over a trillion dollars in market value and pushed the sector into a prolonged selloff amid concerns about the sustainability of artificial intelligence capital spending.
SMH fell more than 5% on July 1, 2026, the first trading day of the third quarter, just hours after the fund posted its best quarter ever with a 71% gain from April through June, according to CNBC. The decline accelerated from there, with the VanEck Semiconductor Index falling 13% over ten sessions by early July, as reported by Forbes.
The root of the selloff is not a loss in demand for chips, but rather a combination of concerns about whether record AI infrastructure spending can continue at current levels. Hyperscalers—internet companies including Meta, Amazon, Google, and Microsoft—have been pouring hundreds of billions into AI data centers. Meta’s decision to rent out excess computing capacity, reported by Bloomberg, raised investor fears that AI processing supply may be catching up to demand faster than expected, potentially capping future capital expenditures in the sector.
According to Forbes, semiconductor stocks have erased roughly $1.3 trillion in market value, with major chipmakers Intel, Micron, AMD, and Samsung all under pressure. The Philadelphia Semiconductor Index fell 4.7% on July 7, dipping below its 50-day moving average for the first time since April, according to Morningstar. Analysts point to additional headwinds including dot-com-era valuations, a more hawkish Federal Reserve stance, and price-cutting pressure on AI services from enterprises seeking to limit their monthly AI chatbot budgets.
Despite the sharp decline, Wall Street’s 12-month price targets still suggest substantial upside for many semiconductor stocks. Nvidia is expected to rise 56% from current levels, and Micron 66%, according to analyst consensus cited in Forbes. Morgan Stanley characterized the recent drop as a “mid-cycle reset” rather than a market peak. However, upcoming earnings from major chipmakers including TSMC (scheduled for July 16) and Intel (July 23) will be closely watched to determine whether the sector can stabilize by beating the market’s now-elevated expectations.
Sources
- CNBC — SMH fell more than 5% on July 1, 2026, after posting a 71% gain in Q2; details on Meta’s computing capacity rental and its impact on chip stocks.
- Forbes — VanEck Semiconductor Index fell 13% over ten sessions; semiconductor stocks erased $1.3 trillion in value; analyst commentary on valuations, Fed policy, and 12-month price targets for Nvidia and Micron.
- Morningstar — PHLX Semiconductor Index fell 4.7% on July 7, dipping below its 50-day moving average for the first time since April.
- TradingView — SMH trades at $568.92 as of July 16-17, 2026.
