European technology stocks opened lower on Friday, falling 2.3% as global semiconductor shares extended their losses. The sell-off came despite robust earnings reports from industry leaders Taiwan Semiconductor Manufacturing Co. and ASML Holding NV, signaling a shift in investor sentiment toward the artificial intelligence trade.
In Asia, Japan's Nikkei 225 index closed down 4.03%, entering correction territory after falling 11% from its June high. Taiwan's main index sank 6.5%, while South Korean markets were closed for a holiday. The U.S. PHLX Semiconductor Index dropped 4.3%, a decline 8.4 times steeper than the S&P 500's 0.51% fall, highlighting the concentrated nature of the sell-off.
Earnings Beat but Shares Sold
TSMC reported a 77.4% rise in second-quarter net profit, with revenue climbing 36% in Taiwan dollars and gross margin reaching 67.7%, above its guided range. Despite these results, shares in Taipei fell 7.3%. ASML posted net income of €2.9 billion on sales of €9.3 billion, beating last year's figures, and lifted its 2026 sales forecast to between €43 billion and €45 billion. Yet shares in Amsterdam dropped over 4%.
The divergence between strong fundamentals and falling prices reflects a growing concern among investors that AI-related stocks are now priced for perfection. "Investors are no longer valuing the AI trade based on growth," said Gene Goldman, chief investment officer at Cetera. "Now, it's being priced as if perfection is expected."
Concentration Amplifies Losses
The sell-off was exacerbated by the heavy weighting of semiconductors in major indices. Semiconductors now account for more than 20% of the S&P 500, up from 8% a few years ago. This concentration means that any rotation out of tech can have an outsized impact on broader indexes. While nearly 75% of S&P 500 components actually rose on Thursday, the index still ended down 0.51% due to the drag from mega-cap tech.
The Nasdaq Composite fell 1.47% on Thursday, even as sectors like healthcare climbed 2.2%. In Europe, the STOXX 600 index declined 0.6%, with technology the worst-performing sector.
Oil Prices Rise
Brent crude oil held near $84.30 per barrel, heading for a weekly gain of more than 10%. This added to the broader market uncertainty, as rising energy costs can pressure corporate margins and consumer spending.
Alphabet Earnings on Deck
Alphabet Inc. is scheduled to report second-quarter earnings after the U.S. market close on Wednesday, July 22. Analysts will be closely watching capital expenditures, cloud business performance, and cash flow for signs of whether AI investments are translating into sustainable returns.
Outlook: A Pivotal Moment for AI Trade
The simultaneous moves in TSMC and ASML shares underscore that valuation and market positioning have become more important than current order flows. Investors are increasingly questioning whether customers can convert heavy capital spending into lasting profitability. Risks remain on both sides: additional leveraged selling could accelerate losses, but substantial cash returns to shareholders might trigger a swift recovery.
For now, the key question is not whether AI demand exists, but whether the market's high expectations can be met. The coming weeks, especially with major tech earnings reports, will be critical in determining the direction of this trade.
