The VanEck Semiconductor ETF (SMH) fell 3.32% on July 28, 2026, as the broader semiconductor sector tumbled on mounting concerns about the sustainability of artificial intelligence spending and intensifying competition from China.
Chip stocks led the market decline, with the Philadelphia Semiconductor Index dropping 4% and falling more than 20% from its June high. Major semiconductor companies bore the brunt of the selloff: Micron Technology slid 6.4%, South Korea’s SK Hynix fell 6%, Intel shed 5%, while NVIDIA dropped 1.2% and Taiwan’s TSMC declined 2.7%, according to Reuters.
The selloff reflects deepening investor anxiety about whether hyperscalers—Amazon, Meta, Apple, and Microsoft—can justify the enormous sums they are pouring into AI infrastructure. According to Reuters, U.S. hyperscalers’ bond issuance surged to $193.8 billion in 2026, up from $108.1 billion in 2025, as companies increasingly rely on debt to fund their AI ambitions. “The market is extremely concerned about the level of spending that’s been going on from the hyperscalers. These huge dollar amounts feel irresponsible at this point,” said Robert Pavlik, senior portfolio manager at Dakota Wealth, as cited by Reuters.
The semiconductor sector’s troubles also stem from rising competition out of China. Bloomberg reported that “signs of progress in China’s advanced chipmaking compounded worries about the sustainability of the artificial intelligence spending boom,” adding that the Nasdaq 100 fell 1.8%, putting the index on track to enter a correction.
Valuation pressures have plagued semiconductor stocks throughout July. Early in the month, a dramatic reversal saw AMD stock fall 5% amid the broader chip sector selloff, and the sector has faced persistent questions about whether AI capex can be sustained. According to Reuters, investors are now scrutinizing whether the AI infrastructure boom, which drove record gains in chip stocks during the previous quarter, can continue at current levels as companies face mounting debt and slowing returns on massive investments.
The pressure on SMH and the semiconductor sector comes ahead of major earnings reports from big tech companies later this week. Investors will be watching closely to see whether Amazon, Meta, Apple, and Microsoft can demonstrate that their hundreds of billions of dollars in AI investments are generating meaningful returns. Higher interest rates, which the Federal Reserve is expected to address on Wednesday, could further strain companies already dependent on debt financing.
The recent SK Hynix stock plunge amid AI concerns underscores how vulnerable memory chip makers have become to shifts in investor sentiment around the AI boom. Meanwhile, SMH semiconductor ETF has drawn billions in investor inflows despite the pullback from highs, suggesting some investors view current prices as a buying opportunity after the sharp declines.
Sources
- Reuters — SMH and semiconductor stock price declines on July 28, 2026; Micron, SK Hynix, Intel, NVIDIA, and TSMC performance; hyperscaler bond issuance data; Robert Pavlik quote; Federal Reserve rate expectations.
- Bloomberg — Nasdaq 100 decline; Philadelphia Semiconductor Index performance; China’s advanced chipmaking progress and AI sustainability concerns.
- Barron’s — SMH price decline of 3.32% (down 18.21 points) on July 28, 2026.
