Stark contrast! US chip stocks record "best quarter in history," while Nvidia "falls far short."

U.S. chip stocks posted historic gains in the first half of 2026, but the feast was not shared by all. AI chip leader Nvidia has risen only about 7% year-to-date, ranking at the bottom of the semiconductor index components, forming a sharp contrast with the sector's exuberance.

As of Tuesday's close, the Philadelphia Semiconductor Index surged 88% in the second quarter, marking its best single-quarter performance ever, and rose 101% in the first half of the year, potentially on track for its strongest annual performance since the dot-com bubble in 1999.

In comparison, the Nasdaq 100 Index rose 28% over the same period, and the S&P 500 Index rose 15%, both far below the chip sector. The core driver behind this rally is the market's strong bet on demand for AI infrastructure.

However, just at the moment of celebration, the semiconductor index plunged 7.9% last week, its biggest weekly drop since April 2025. On Monday this week, it fell 3.2% intraday before rebounding to close up 3.8%. The violent swings have prompted investors to reassess the sustainability of this uptrend.

Meanwhile, Nvidia's relative underperformance reflects a dispersion of AI chip demand across a broader range of semiconductor companies. Whether it can reclaim dominance with its next-generation Vera Rubin hardware has become a focus of market attention.

Best Quarter Ever: Memory Chip Stocks Lead, Leaving the Broader Market in the Dust

The biggest winners in this chip stock rally are concentrated in the memory and storage sector.

Sandisk leads S&P 500 components with a year-to-date gain of 857%; Micron follows with a 300% gain, breaking through a $1 trillion market cap and ranking among the world's largest U.S. memory chip makers. Western Digital, Seagate Technology, and a sharply rebounding Intel round out the top five gainers.

Sean Sun, portfolio manager at Thornburg Investment Management, said: "We are seeing investors chasing the bottlenecks in the semiconductor industry, which is currently benefiting the memory sector and also bodes well for Intel's recovery as a foundry."

Meanwhile, South Korean memory chip giant SK Hynix is seeking to raise $29.4 billion in the U.S. market, further confirming the capital appeal of the memory track.

Nvidia Lags Behind: AI Chip Demand Diversifies, Competitive Landscape Shifts

Nvidia is the most notable "laggard" in this rally. As the world's largest company by market cap and synonymous with AI chips, Nvidia has risen only about 7% year-to-date, ranking at the bottom of the Philadelphia Semiconductor Index components. Broadcom, with a gain of about 7.9%, also lags far behind the overall sector.

According to analysis, the core reason for Nvidia's underperformance is that massive spending on AI chips is being dispersed to a broader range of semiconductor companies. Competition has expanded from an initial head-to-head with AMD to include custom chip designers and CPU specialists like Intel.

Sean Sun explained: "Nvidia and Broadcom are hitting those bottlenecks; they are no longer the high-beta names they used to be. I think they will still perform well, but now investors want higher beta exposure to the strongest themes."

The key question for the market is whether Nvidia's next-generation Vera Rubin hardware can establish a sufficiently significant performance advantage to make it the preferred supplier for AI infrastructure again. However, according to Barron's, even with stellar performance, big tech companies may not want to rely too heavily on a single supplier, especially when their capital expenditure scale is facing shareholder pressure.

Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, wrote in a research note: "The decline in mega-cap cloud stocks this month suggests that shareholders are increasing pressure on them to justify spending, and we acknowledge that the risk of slowing capital expenditure growth has increased marginally on the margin. "

Valuation Divergence: Nvidia Hits Multi-Year Lows, Some Stocks Severely Overstretched

Although the overall sector valuation is clearly elevated, the internal divergence is extremely significant.

The Philadelphia Semiconductor Index currently trades at a P/E ratio of about 26 times forward earnings, well above its 10-year average of 19 times and close to the recent high of 30 times set in 2024. In comparison, the Nasdaq 100 Index has a P/E ratio of 23 times, and the S&P 500 is at 20 times.

Within the sector, ARM Holdings Plc has a 12-month forward P/E ratio of more than 140 times, while Intel is around 100 times—both severely overstretched by traditional valuation standards.

Nvidia is at the other extreme—its forward P/E ratio is only about 18 times, the lowest since 2018 and far below its 10-year average of 36 times. Micron's forward P/E ratio is about 8 times, and some on Wall Street interpret this low valuation as a warning sign that revenue and profit have peaked.

According to Bloomberg Intelligence data, analysts are increasingly optimistic about chip stocks, expecting industry earnings to grow 49% by 2027, up from the 35% forecast in April; revenue growth expectations have also been raised from 29% to 37%, both well ahead of the overall S&P 500 expectations (earnings growth of 17% and revenue growth of 7.4%).

Volatility Intensifies: Retail Investors Flood In While Hedge Funds Retreat

Behind the high gains, volatility in chip stocks has also hit record levels.

According to Bloomberg, the Cboe Semiconductor ETF Volatility Index, which tracks the future volatility of semiconductor ETFs, has risen 83% year-to-date. If it maintains this gain by year-end, it would set a record for the largest annual increase in the index's history, currently at its highest level since the Trump tariff shock in April 2025.

This month, the Philadelphia Semiconductor Index has seen the vast majority of trading days with daily moves exceeding 1%, including a single-day gain of 7.9% and extreme cases with daily drops of over 10%. According to Goldman Sachs prime brokerage data, hedge funds are selling tech, media, and telecom stocks at the fastest pace in a decade, while a flood of retail investors is further amplifying price swings.

CJ Muse, Senior Managing Director and Technology Analyst at Cantor Fitzgerald, said: "New changes in investor structure are exacerbating volatility, and at the same time, new AI capability white papers are being published almost every week. We will continue to be in this highly volatile market for some time."

He also noted that the market's biggest concern is whether the mega-cap cloud companies can sustain and expand capital expenditures beyond 2026, but he personally does not believe the "cash-burning spree" will end soon. Currently, Microsoft, Amazon, Alphabet, and Meta all maintain aggressive capital expenditure plans.

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