Chip stocks finally fell! The Philadelphia Semiconductor Index dropped as much as 6.8% intraday, with Micron, Intel, and Broadcom leading the decline in the Nasdaq.

The rapidly advancing US chip stocks experienced a sharp reversal, posting the largest intraday decline in over a year and dragging the broader market lower.

On Tuesday, the Philadelphia Semiconductor Index plunged as much as 6.8 intraday, then recovered some losses, closing down 3%. Broadcom, Intel, and Micron Technology became the largest weightings dragging down the S&P 500 and the tech-heavy Nasdaq 100.

The astonishing speed of the sell-off prompted investors to actively reduce risk exposure to lock in profits after a historic rebound. Meanwhile, bearish bets on the sector surged, with options trading volume betting on chip stocks falling exploding in the Tuesday afternoon session.

Market strategists attributed this broad correction to risk management and profit-taking. Despite the sharp pullback, Wall Street analysts generally believe that the fundamental earnings outlook driven by artificial intelligence infrastructure spending remains solid.

Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, said, "A historic rally can't last forever. After an incredible surge, this sell-off was long overdue, but the pain may not last too long because FOMO (fear of missing out) is everywhere."

The sell-off sweeps through the semiconductor sector, profit-taking and surge in bearish bets

Tuesday’s sell-off nearly wiped out all components of the semiconductor index. Qualcomm led the decline, falling nearly 12%. Nvidia was the only chip manufacturer to close higher; this AI giant has lagged the overall sector this year and will report earnings next week.

This plunge occurred after the sector experienced a parabolic rise. Benefiting from massive spending on AI infrastructure, especially the surge in demand for key chips used in processing and storage, the Philadelphia Semiconductor Index has gained over 60% in 2026.

Among them, Intel has soared 227% this year, Micron Technology up 169%, both ranking among the top six best-performing stocks in the S&P 500 this year.

As chip stocks retreat from highs, some investors are betting that the downward trend will continue.

The Direxion Daily Semiconductor Bear 3X Shares ETF (ticker: SOXS), which provides three times inverse exposure to the Philadelphia Semiconductor Index, surged 9.2%. In the Tuesday afternoon session, the ETF’s call options (bets on chip stocks falling) volume spiked to 292,000 contracts.

Dec Mullarkey, managing director at SLC Management, said the broad scope of the decline suggests investors may be locking in profits ahead of key events this week. He noted that since chips are at the heart of important negotiations, reducing positions could serve as ammunition for potential market volatility after the meetings.

Jonathan Krinsky, chief market technician at BTIG, warned in a client report Tuesday that the recent parabolic rise in tech, semiconductors, and AI sectors suggests that, as momentum overheats, the semiconductor index could face a roughly 20% correction.

Wall Street remains optimistic about fundamentals

Despite the sharp correction, many Wall Street professionals are not ready to give up on chip stocks. In an environment where AI spending dominates the market, the sector’s fundamentals remain strong.

Barry Knapp, partner at Ironsides Macroeconomics, pointed out that while the decline was rapid and tense, trimming exposure after such a big rally is a prudent risk management move. He said he sees no fundamental factors indicating profit growth will slow.

Chris Murphy of Susquehanna International Group believes that the historic rebound in chip makers cannot last forever. After an incredible surge, this sell-off was overdue. However, he expects that, due to widespread FOMO, this pain may be short-lived.

Rhys Williams, chief strategist at Wayve Capital Management, further emphasized that until market breadth expands or other investable targets emerge, large amounts of capital will continue flowing into the sector, with bulls still in control.

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