Wall Street has its eyes locked on the semiconductor industry this earnings season, as chipmakers are projected to deliver massive profit increases — while their stock prices swing wildly from day to day.
The PHLX Semiconductor index has climbed 65% so far this year, far outpacing the S&P 500’s 9% gain. But the 30-stock index has hit a rough patch in July, falling 18% for the month after moving at least 3 percentage points up or down on half of July’s 12 trading days. By the end of last Friday, the index had also dropped more than 20% from its all-time closing high set in late June.
Despite the turbulence, the earnings outlook for the sector remains strong. Profits for S&P 500 semiconductor and semiconductor equipment companies are forecast to jump 133% compared to the same period last year. According to Tajinder Dhillon, head of earnings research at LSEG, that group alone is expected to account for roughly 44% of total S&P 500 earnings growth for the second quarter. Overall S&P 500 earnings are projected to have risen 26% year-over-year, based on LSEG data through Friday.
Among U.S. chipmakers reporting this week, Intel and Texas Instruments are set to release their results. Nvidia won’t report until late August.
But recent earnings reports suggest investor sentiment may already be shifting. Shares of Taiwan Semiconductor Manufacturing — the world’s largest contract chipmaker — actually declined last Thursday, even after the company announced a 77% surge in second-quarter net profit that beat market expectations. Earlier in July, shares of Samsung Electronics dropped sharply despite the company reporting a 19-fold increase in second-quarter operating profit.
Rick Meckler, a partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey, expressed surprise at the scale of the daily price swings. “The daily moves for companies this big are just shocking,” he said. “Would the earnings picture change that? Certainly a disappointing outlook could.”
Market analysts point partly to the growing influence of retail investors and leveraged exchange-traded funds as a driver of the volatility. Leveraged ETFs magnify market swings by increasing demand for shares when prices rise and accelerating selling when prices fall. “One thing that’s driven a lot of these stocks has been option activity by retail investors. That’s a big factor in just how volatile the stock moves have become,” Meckler added.
South Korea’s financial regulator took action Thursday, announcing measures aimed at reducing market swings caused by single-stock leveraged ETFs tied to chipmakers Samsung Electronics and SK Hynix. Those ETFs were launched in South Korea in late May.
Investment firm BTIG noted in a recent report that while the semiconductor sector’s performance has been remarkable, so has its instability, with some warning signs that “rhyme with the March 2000 peak.”
Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, said rising AI spending has fueled the chip frenzy, but concerns are growing that enthusiasm for the sector has gotten ahead of reality. “This chip demand for AI is not a forever scenario,” Dollarhide said, warning that during earnings season, “anybody who disappoints is going to get clobbered.”
Chipmakers have historically been seen as cyclical businesses — companies whose fortunes rise and fall with the broader global economy. The AI boom has only deepened that connection.
Daniel Morgan, a portfolio manager at Synovus Trust in Atlanta, offered a more optimistic take, noting that demand for chips is spreading beyond data centers into industrial electronics, wireless communications, and the automotive sector. “You’re seeing a broadening out,” he said. However, he pointed out one area of continued weakness: chips used in mobile handsets, with Qualcomm among those companies facing headwinds in that space.
