Philadelphia Semiconductor Index plunges 4.78%: SanDisk and SK hynix slump hard — is the AI memory supercycle entering a correction?

On July 13, U.S. stocks faced a systemic sell-off in the semiconductor sector in the Eastern Time zone.

The Dow Jones Industrial Average fell by 138.31 points, closing at 52,498.70 points, down 0.26%; the S&P 500 fell by 59.92 points to 7,515.47 points, down 0.79%; and the Nasdaq Composite plunged by 408.43 points to close at 25,873.18 points, down 1.55%. Behind all three major indexes ending lower, the Philadelphia Semiconductor Index (SOX) became the biggest loser of the day—down 4.78% in a single session, closing at 12,347.78 points, and posting its largest one-day drop in recent times.

At the individual stock level, the memory chip sector was the hardest hit. SanDisk (SNDK) plunged by $241.95, or 12.63%, to close at $1,673.97. Trading value was as high as $23.32B, ranking third among U.S. stock individual names by trading value on the day. SK Hynix U.S. Depositary Receipts (ADR) dropped 9.32% on only the second trading day, closing at $152.35, nearly erasing the 13.1% gain from its first day. Micron Technology fell 4.32%, Western Digital dropped 4.64%, and Seagate Technology tumbled 5.46%. Intel fell more than 6%, AMD fell more than 4%, and NVIDIA fell 3.52%.

The backdrop to this rout is that the semiconductor sector experienced an unprecedented surge. Since the Philadelphia Semiconductor Index hit a record high in June, it has already fallen by more than 15%, but it is still up about 75% year-to-date. Over the past 52 weeks, SanDisk’s gain had once reached as high as 3,531.96%. With such huge prior gains, any pullback is enough to trigger deep questions in the market: whether the “AI memory super cycle” has already ended.

Triple pressure hits at once: Why the semiconductor sector suddenly tumbled hard

The July 13 semiconductor sell-off was not triggered by a single factor, but by the resonance of threefold pressures—macro, geopolitical, and industry.

First pressure: The Fed’s clearest hawkish warning so far. In a public speech on Monday, Federal Reserve Governor Christopher Waller delivered the most explicit hawkish signal to date. He said that if the core inflation data released this week again runs hot, “the Federal Open Market Committee will need to consider tightening monetary policy in the near term.” Waller specifically pointed out that tariffs, energy prices, and demand driven by AI infrastructure development have become important sources of upward inflation pressure.

This statement directly triggered a reassessment of interest-rate outlooks. After Waller’s remarks, the yield on the U.S. 10-year Treasury briefly jumped, rising more than 5.2 basis points to 4.6156%; the yield on the 2-year Treasury rose by about 7 basis points to 4.2773%. The Fed watch tool at the Chicago Mercantile Exchange showed that the market’s probability of a 25-basis-point rate hike in July surged from 26% a week earlier to 41%, with some traders’ pricing indicating the hike probability is approaching around 50%.

For technology growth stocks whose valuations depend on discounted future cash flows, every lift in rate expectations means a direct compression of valuation multiples. Although memory chip companies have achieved astonishing performance growth driven by AI demand, their stock prices contain a very high component of forward expectations, making them far more sensitive to interest-rate changes than value-oriented sectors.

Second pressure: The Middle East geopolitical conflict suddenly escalates. On the same day as Waller’s speech, tensions between the U.S. and Iran escalated again. U.S. President Donald Trump announced the restart of the blockade of Iranian ports, and U.S. forces began enforcing a maritime blockade starting at 20:00 Greenwich Mean Time on July 14. The New York Times reported that Trump has formally notified Congress that fighting with Iran has reignited.

International oil prices surged—WTI crude futures rose 9.42% to $78.14 per barrel; and Brent crude futures rose 9.59% to $83.30 per barrel. Geopolitical risk weighs on tech stocks in two ways: higher oil prices directly boost inflation expectations, strengthening the logic chain for Fed rate hikes; and a systemic cooling in risk appetite causes funds to retreat from high-volatility semiconductor stocks and rotate into defensive sectors such as energy. The energy sector rose sharply that day, with ExxonMobil up more than 4% and Chevron up more than 3%.

Third pressure: Growing controversy over AI investment returns. In the past, market trading logic was straightforward—rapid growth in AI demand implies chip demand can expand infinitely, and semiconductor companies would keep rising. But now, hyperscalers are accelerating their development of low-cost chips in-house, eroding chipmakers’ pricing power. Companies have started discussing the pace of AI investment and its return rate, and the market believes it is currently at the early stage when the growth rate of AI capital expenditures begins to slow.

Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, issued a warning that the semiconductor sector is “clearly overbought,” noting that chipmakers’ pricing power is limited and related stocks may have already risen too much due to optimistic sentiment about AI spending. Mike Wilson of the firm further warned that chip stocks could fall 30% to 40%.

LSEG Lipper data showed that in the week ending June 24, funds tracking U.S. semiconductor stocks recorded about $11 billion in outflows, setting the largest single-week outflow record this century. In the two weeks prior, these funds had still recorded inflows of about $12 billion—highlighting how violently market sentiment is swinging.

Why memory chips became the biggest decliners

In this sell-off, SanDisk and SK Hynix fell much more than other semiconductor stocks. Behind this were distinct logics for each.

SanDisk: Valuation scrutiny over the NAND cycle. SanDisk’s rally thesis was built on the narrative that explosive growth in AI server data volumes would drive higher demand for enterprise SSDs. But investors have started to worry about two issues: whether the rise in storage prices has already been fully reflected in the stock price; and whether the improvement in earnings is sustainable.

SanDisk’s gains for the year once exceeded 600%, with a gain of as much as 3,531.96% over the past 52 weeks. Against such extreme gains, any earnings signal below expectations could trigger a sharp pullback. Although Citigroup maintained a $2,500 target price, Evercore ISI raised its target price from $1,400 to $3,100; the fact that analysts raised targets also reflects that valuations are already at extremely high levels due to the prior surge.

SK Hynix: Earnings expectations cut under long-term contract locked prices. SK Hynix ADR completed its Nasdaq listing on July 10, raising $2.65 billion in the form of ADRs and setting a historical record for overseas companies’ IPOs in the U.S. However, listing enthusiasm lasted only one trading day.

South Korean brokerage analyst Minsook Chae released a report estimating that SK Hynix’s latest-quarter operating profit may be 8% lower than market consensus, and noted that it has a high proportion of revenue from high-bandwidth memory (HBM). Meanwhile, because HBM prices are constrained by long-term supply agreements, its price growth is slower than that of traditional chips. The average HBM price increase could be below expectations, and mixed-type and spot DRAM chip products show a similar trend.

At the same time, SK Hynix’s South Korea-listed shares plunged 15.37% that day, marking the largest single-day drop in history, dragging the broader South Korean stock market index down by 9% and triggering the market-wide circuit breaker mechanism. Foreign investors net sold about 1.7 trillion won worth of KOSPI stocks that day (about $1.1 billion), with most coming from SK Hynix’s sell-off.

Vantage Global Prime market analyst Hebe Chen said in an interview with Bloomberg on Monday: “SK Hynix is currently in a hangover after a dopamine surge—the excitement that pushed the stock higher is fading, replaced by much harsher expectation adjustments.”

Seoul hedge fund Petra Capital Management managing partner Chan H Lee added: “The ADR issuance itself was highly successful, but most of the positives were already reflected in the stock price. The weakness on Monday mainly reflects the typical ‘sell the fact’ reaction and profit-taking, rather than a change in fundamentals.”

Has the AI semiconductor super cycle ended already?

This is a question that needs a cautious answer. The current evidence leans more toward “a valuation adjustment” rather than a “trend reversal.”

Factors supporting the long-term logic still remain. Big tech companies are still investing in data centers, GPU clusters, and AI infrastructure. Morgan Stanley noted that global cloud capital expenditures in 2026 will reach $735 billion, up about 60% year over year, marking the third consecutive year of high growth. Alphabet said its 2026 capital expenditure estimate will jump significantly to between $17k and $185 billion.

TSMC (TSM) will report its second-quarter results on July 16, with June revenue up 68% year over year. The company previously said its expected 2025 capital expenditure is close to $56 billion, potentially reaching a historical high. Morgan Stanley’s report estimates that TSMC’s CoWoS capacity will expand from about 70k wafers per month by the end of 2025 to 120k by the end of 2026. Demand from NVIDIA, AMD, and ASIC customers for 3-nanometer, 5-nanometer, and advanced packaging still remains strong.

A recent report from Bank of America Securities said that by 2027, global cloud and AI infrastructure capital expenditures are expected to approach $1.5 trillion, up 40% to 50% year over year. BofA clearly judged that the storage market size in 2026 will be close to $70k (DRAM and NAND combined: $891.8 billion), and that in 2027 it will break $1.2 trillion. This is not just a cyclical rebound; it is an AI-driven “super cycle.”

But the market is shifting from a “broad-based rally” to a “selective stage.” Goldman Sachs said in its latest report that semiconductor stocks still offer opportunities after the pullback, but AI chip trading has moved into a more selective stage, and investors should not simply buy the entire sector. The PHLX Semiconductor Index’s gain this year has already exceeded 80%, significantly outperforming the S&P 500 and Nasdaq indexes—raising the bar for subsequent performance achievement.

Going forward, the market may focus more on structural winners: HBM suppliers, AI server supply chains, and semiconductor equipment companies. Bernstein recommends focusing on Applied Materials (AMAT), Lam Research (LRCX), and ASML, giving “outperform the broader market” ratings. Companies that rely on standard memory and lower-profit chips may face greater valuation pressure.

Three signals the market needs to watch next

TSMC’s July 16 earnings report. As the world’s largest chip foundry, TSMC’s revenue, gross margin, and capital expenditure plans are key indicators for gauging AI chip demand and the status of the supply chain. The market will look to see whether management raises its full-year guidance for revenue growth, capital expenditures, and releases more plans for advanced process and packaging capacity.

Storage price trends. The price trends of HBM, DRAM, and NAND will directly affect earnings expectations for memory chip companies. TrendForce statistics show that in the second quarter of 2026, server DRAM contract prices are expected to rise 50% to 55% quarter over quarter. NAND flash contract prices are expected to rise 70% to 75% quarter over quarter. Whether prices can hold at elevated levels is the core variable for judging whether the storage super cycle will continue.

Cloud providers’ AI investment pace. Capital expenditure plans from Amazon AWS, Microsoft Azure, Google Cloud, and Meta are the most direct signals for whether AI infrastructure investment is slowing. Morgan Stanley believes the growth rate of AI capital expenditures may have entered the early stage of slowing. If cloud providers show signs of deceleration in second-half capital expenditure guidance, the semiconductor sector may face further pressure.

Conclusion

The semiconductor sell-off on July 13 was the result of multiple factors converging—geopolitical conflict boosted oil prices and inflation expectations, hawkish Fed signals suppressed growth-stock valuations, and controversy over AI investment returns led the market to re-price. This looks more like risk release under high valuations rather than a structural reversal in AI demand.

The Philadelphia Semiconductor Index is still up about 75% year-to-date, and SanDisk has gained more than 35 times over the past year. With such huge gains, any small change can trigger profit-taking. AI compute demand is still growing, HBM remains a bottleneck for compute, and cloud providers’ capital expenditures have not shown substantial contraction. But the market has already moved from the stage of “buy semiconductors with eyes closed” into a new period where investors need to pick carefully among winners.

For investors, the key going forward is not whether the big AI trend has ended—that trend is likely not over—but identifying which companies can ride out the cycle by leveraging technical moats and capacity advantages during the process of valuation reconstruction, and which companies may expose risks after the tide goes out.

FAQ

Q: How much exactly did the Philadelphia Semiconductor Index fall on July 13?

The Philadelphia Semiconductor Index (SOX) fell 4.78% in a single day, closing at 12,347.78 points, its largest one-day drop in recent times. On the same day, the Nasdaq Composite fell 1.55% and the S&P 500 fell 0.79%.

Q: Why did SanDisk and SK Hynix fall the most?

SanDisk’s gain for the year once exceeded 600%, and the magnitude of the prior surge made valuations highly sensitive to any negative signals. SK Hynix’s ADR plunged 9.32% the day after listing, mainly because the market worried that its HBM prices are constrained by long-term agreements, with growth slower than expected, and because SK Hynix’s South Korea-listed shares plunged 15%, dragging the ADR performance.

Q: How did Fed rate-hike expectations affect semiconductor stocks?

After Fed Governor Waller’s hawkish remarks, the market’s expected probability of a July rate hike rose from 26% to 41%. Rising rates compress valuations for growth stocks that rely on future cash flows, and the semiconductor sector—having a high component of forward expectations—is especially sensitive to changes in interest rates.

Q: Has the AI semiconductor super cycle ended?

At present, the evidence supports “valuation adjustment” rather than “trend reversal.” TSMC’s June revenue rose 68% year over year, and global cloud capital expenditures for 2026 are expected to reach $735 billion. However, the market is moving from broad rallies into a selective phase, so investors need to focus more on stock selection.

Q: What key signals should be watched next?

Focus on three signals: AI orders and capital expenditure guidance in TSMC’s July 16 earnings report; price trends for HBM, DRAM, and NAND; and whether AI infrastructure investment plans from Amazon AWS, Microsoft Azure, Google Cloud, and Meta show signs of deceleration.