Chip stocks approach bull market as analysts express concerns

Chip stocks are having a year that would make most sectors jealous, then immediately nervous. The Invesco PHLX Semiconductor ETF (SOXQ) delivered roughly 60-70% in year-to-date returns as of early-to-mid August 2026, after briefly touching gains near 100% earlier in the year. That kind of run gets attention. It also gets scrutiny.

The fuel behind the rally is no mystery: artificial intelligence infrastructure spending has created what amounts to a permanent state of demand emergency for semiconductors. Every hyperscaler building out data centers needs chips, and lots of them. That simple equation has propelled names like Nvidia, Broadcom, and AMD into the center of what Bank of America now projects will be a $1.3 trillion global semiconductor revenue year in 2026.

What the July sell-off revealed

Then came July. The PHLX Semiconductor Index (SOX) dropped more than 20% from its peak during a broad sell-off, technically pushing the index into bear-market territory from those highs. Hedge funds responded by trimming their exposure to momentum and chip positions by roughly 5%.

The concern is not just about price. It is about the chain of logic holding the whole thesis together. Semiconductor companies are printing strong numbers, but their profits depend heavily on capital expenditure decisions made by a small group of cloud giants. If any of those hyperscalers blink, pulls back a data center project, or simply guides more cautiously on the next earnings call, the ripple hits chip demand fast.

Burry’s warning and the valuation question

Michael Burry, who made his name betting against the 2008 housing market before most people knew there was a problem, has raised a version of this concern publicly. His argument centers on a disconnect: semiconductor companies are booking profits at a historic pace, but the underlying economics of their customers may not be as durable as the current capex cycle implies. Burry has cautioned that when the clients slow down, the chip suppliers feel it first and hardest.

Bank of America, for its part, is not backing away from optimism. The bank’s $1.3 trillion revenue forecast for the global semiconductor industry reflects genuine confidence in sustained AI-driven demand. Nvidia and Broadcom in particular are flagged as key beneficiaries, given their positioning in AI accelerators and custom silicon respectively.

What comes next, and why Nvidia’s earnings matter so much

The next major inflection point for the sector is Nvidia’s earnings announcement, expected on August 26, 2026. At this point in the AI trade, Nvidia is less a single company and more a sentiment proxy for the entire semiconductor thesis. Strong results and guidance would likely reignite momentum across the sector. A miss, or even muted forward guidance, could accelerate the kind of repositioning that started in July.

The speed of the drawdown, more than 20% from peak, and the speed of the subsequent recovery are both signals worth taking seriously. Volatility at that scale, in both directions, is not the signature of a calm, efficiently priced market. It is the signature of a sector where conviction is high, disagreement is real, and a single earnings report can move the needle sharply.

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