U.S. semiconductor equities experienced a sharp decline on Monday, with the Philadelphia Semiconductor Index falling 3.6% in late-morning trading. The sell-off was led by memory and storage companies including Micron Technology (NASDAQ:MU), Sandisk (NASDAQ:SNDK), and SK Hynix (NASDAQ:SKHY), as a combination of geopolitical tensions and a massive South Korean investment plan weighed on investor sentiment.
Oil prices surged amid renewed conflict between the U.S. and Iran, contributing to a broader risk-off mood in the markets. “The conflict is testing whether the stock market’s broad-based growth can hold,” said Alex Guiliano, chief investment officer at Resonate Wealth Partners. The rise in energy costs threatens to keep inflation and interest rates elevated, while higher bond yields reduce the present value of future profits—a dynamic that hit smaller, high-growth chip companies particularly hard.
Despite the sell-off, underlying chip demand remains robust. Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) reported June revenue up 67.9% year-over-year to NT$442.68 billion, with first-half sales gaining 35.6%. Yet even TSMC’s U.S. shares fell 1.6% to 2.4%, as markets appeared to have already priced in the strong numbers.
The disparity between sub-sectors was stark. Memory and storage names lagged the larger compute and foundry group by approximately 5.4 percentage points, while smaller design and connectivity stocks fell even further. Sandisk dropped 11.6%, Western Digital (NASDAQ:WDC) fell 6.7%, and Micron declined between 5.0% and 7.8%. On the AI infrastructure side, Astera Labs (NASDAQ:ALAB) plunged 14.1%, Arm Holdings (NASDAQ:ARM) fell 7.5%, and Marvell Technology (NASDAQ:MRVL) lost 6.9% to 9.5%. Nvidia (NASDAQ:NVDA) slipped 2.5% and Advanced Micro Devices (NASDAQ:AMD) fell 3.1%. The iShares Semiconductor ETF (NASDAQ:SOXX) dropped 4.5%.
Investors are dialing back the scarcity premium—the high valuations tied to tight supply—and trimming bets on companies with profits forecast years out. SK Hynix triggered the memory sell-off, with its Seoul shares sliding 15.4% and its U.S. ADRs dropping 7.9% after last week’s $26 billion Nasdaq debut. The ADRs still trade at a 25.6% premium over the Korean stock. A double-leveraged Hong Kong fund tied to SK Hynix tumbled by more than a third. “A component of profit taking” was clear, said Phil Blancato, CEO at Ladenburg Thalmann Asset Management, though he noted he’s still seeing strong demand through 2027 and 2028.
Supply risks are at the core of the market’s concern. South Korea’s $576 billion push into AI chips includes roughly $518 billion that Samsung Electronics (OTC:SSNLF) and SK Hynix have earmarked for new fabrication plants. This capital expenditure on plants and equipment will take years to translate into actual supply, but markets typically price new output long before production begins. Jing Jie Yu at Morningstar warned that chips coming online in 2027 and 2028 could cause “price erosion.”
The macro backdrop added to the pressure. Oil moved up about 4.5%, and bond yields rose as the Gulf conflict escalated. This pressure landed harder on Astera, Arm, and Marvell than on Nvidia or TSMC. The market stopped pricing every AI supply chain stock as if it’s just as rare as the next.
Bears may be jumping the gun, however. Last month Micron said its customers lined up $22 billion in deals to lock in memory supply, and it sees production tight for at least two more years. If those orders stick, Monday’s drop could simply be a shakeout of positions. Bigger risks loom if cloud firms pull back on spending or if South Korea ramps up capacity faster than anticipated, which would drive down prices and margins before analysts cut their numbers.
TSMC is set to release its second-quarter report on Thursday, July 16. Investors are likely to focus on updates about capacity, advanced packaging, and customer spending. For now, Monday’s market action points to a tighter risk for stocks that trade on scarcity stories, rather than those with the largest orders in hand.
