Chip selloff puts SOX on bear-market watch as BofA urges calm
The PHLX Semiconductor Index slid toward bear-market territory Friday, but BofA’s Vivek Arya called the move a reset, not a sector break.
By Sal Moretti · Money Reporter
3 min read
Chip stocks took another hard swing Friday, with the PHLX Semiconductor Index on pace to finish in bear-market territory after a blistering run earlier this year.
The index, known by its SOX ticker, needed to close at 11,707.78 or lower to meet the standard bear-market marker of a 20% drop from a recent major high, according to Dow Jones Market Data. MarketWatch reported the index was at 11,675.18 late in the regular session.
The move was anything but tidy. The SOX dropped as much as 5.7% during Friday trading, then briefly turned positive before slipping again to a decline of about 1%, according to MarketWatch.
Bank of America analyst Vivek Arya told clients in a Thursday note that the selloff looked like “a summer reset, not a fundamental reversal.” He linked the pressure to worries about rising memory-chip costs and the sector’s usual third-quarter wobble.
Arya said the SOX has lagged the S&P 500 in the third quarter in 10 of the past 16 years. The current pullback also follows an 80% jump for the sector in the second quarter, he said.
AI jitters hit the tape
Friday’s weakness came as investors weighed a fresh challenge from China’s artificial-intelligence industry. Jefferies analyst Matt Ma said in a Friday note that Moonshot AI’s Kimi K3, a 2.8-trillion-parameter open-weight model, performs on a level comparable with Anthropic’s Fable 5 and OpenAI’s GPT-5.6 Sol, while carrying a lower price.
Mark Malek, chief investment officer at Siebert Financial, said in emailed comments that the perceived distance between U.S. and Chinese frontier AI had narrowed on the same morning investors were questioning whether AI spending can pay off.
Major chip names were under pressure in Friday afternoon trading. MarketWatch reported Broadcom and Advanced Micro Devices were down more than 1%, while Intel and Nvidia were lower by about 2%.
The selling was not uniform. Micron Technology was reported up fractionally, while Sandisk fell about 1.5%. Storage stocks moved the other way, with Seagate Technology up 6.2% and Western Digital gaining 2.5%, according to MarketWatch.
BofA still likes the chip cycle
Arya said he remains positive on semiconductor, networking and chip-equipment stocks. He still expects AI spending to more than double to $1.7 trillion by the end of the decade.
Memory chips now make up about 35% to 40% of hyperscaler capital spending, two to three times their historical share, Arya said. He expects spot and contract prices for memory components to hold up this quarter, noting that spot prices for dynamic random-access memory have risen for eight straight weeks and NAND flash pricing has strengthened.
For chip-equipment makers, Arya pointed to better visibility into a multiyear buildout of AI infrastructure. He expects the wafer-fab equipment market to reach $190 billion in revenue in 2027 and $250 billion in 2028.
Arya also said Taiwan Semiconductor Manufacturing’s increased U.S. investment commitment of $265 billion could push Intel and Samsung Electronics to lift their own U.S. spending. He added that ASML’s outlook for more than 30% annual growth in deep-ultraviolet and extreme-ultraviolet lithography machine shipments in 2027 and 2028, along with expected price increases, supports the broader chip-equipment group.
Still, equipment stocks were caught in Friday’s downdraft. Applied Materials was down 5.4% in afternoon trading, while KLA lost 3% and Lam Research fell 2.9%, according to MarketWatch.
This story draws on original reporting from MarketWatch.