A major shift away from some of the stock market’s biggest recent winners picked up speed this week, driving chip stocks toward their worst weekly performance in over a year and raising new questions about how long the AI-fueled rally can last.
The turbulence in semiconductor shares rippled across global markets, from Seoul to Europe, as investors retreated from stocks tied to artificial intelligence that had been driving strong portfolio gains for much of 2025.
The Philadelphia SE Semiconductor Index dropped 11% this week — a decline that would represent its largest single-week loss since March 2025, if those levels hold. The index has now fallen nearly 24% from its all-time high set in late June, putting it on track to officially enter bear market territory.
Toni Meadows, head of investment at BRI Wealth Management, offered this explanation: “The pullback reflects profit-taking and rising scrutiny of AI capex sustainability.”
Meadows added, “Valuations in semi-conductor stocks had priced near-perfect demand, for what has been a cyclical area in the past, so was always going to leave stocks vulnerable at some point in what has been a rapid rise.”
Despite this week’s sharp losses, the chip index has still climbed nearly 62% so far this year as of early Friday trading.
Among individual stocks, Nvidia shares fell 3%, while Qualcomm and Broadcom each dropped roughly 2%. Memory chip companies Micron and SanDisk each shed around 3%.
SpaceX shares tumbled 4% after a last-second abort of Starship’s 13th flight test added more pressure to a stock that had already slipped below its $135 per share IPO price earlier in the week.
SK Hynix’s U.S.-listed shares fell 2.7%, trading near their offering price, and have now lost more than 9% on the week.
Analysts have pointed to several factors behind this month’s sharp reversal. Chinese AI startup Moonshot unveiled a new model called Kimi K3 — a 2.8 trillion-parameter system the company describes as the world’s largest open-weight AI model — reigniting investor concerns about how quickly U.S. tech companies will see returns on their massive AI spending.
A report released Thursday indicated that Alphabet’s Google is running several months behind schedule on the launch of Gemini 3.5 Pro, its most advanced AI model.
Global markets have had a rocky start to July overall. South Korea’s KOSPI index fell into bear market territory last week, even as it remains up nearly 70% for the year. Japan’s Nikkei dropped into correction territory on Friday. Europe’s technology sector has been among the worst-performing areas this week, despite having posted its biggest quarterly gain since 2001 just last month.
The S&P 500 Momentum Index, which had been outpacing the broader S&P 500 by more than two-to-one this year, has now pulled back 10% in July, compared to just a 0.8% decline in the wider market.
Upbeat earnings forecasts from the world’s largest chipmaker, Taiwan’s TSMC, and European semiconductor equipment company ASML did little to slow the selloff.
Attention is now turning to upcoming earnings reports from two members of Wall Street’s so-called “Magnificent Seven” group. Alphabet and Tesla are both scheduled to release their quarterly results next week.
Space-related stocks also fell this week after rallying earlier in the year on excitement surrounding SpaceX’s market debut. Rocket Lab and Intuitive Machines each dropped 3% and 4% on Friday respectively, and both were on pace to finish the week down roughly 20%.
