Semiconductor selloff escalates, entering a technical bear market

TSMC delivers the strongest quarterly report in its history—so why has it become the fuse for a breakdown?

Last night’s close in US stocks: the Philadelphia Semiconductor Index fell 4.3% on the day, with a cumulative pullback of 22% from the mid-June peak, and a technical bear market has been confirmed. SK hynix ADRs dropped more than 13%, SanDisk (SD) fell more than 12%, and Micron’s pullback from its all-time high has already exceeded 30%. The selloff hasn’t stopped in the US market—today in Japan, Kioxia shares hit the daily limit down during the session, falling 15.55%, with its market cap cut in half from the June peak. The Nikkei 225 was down more than 4% at one point.

What triggered this wave of selling is TSMC’s quarterly report: a gross margin of 67.7%, and an increase in full-year capital expenditure guidance to $60 billion to $64 billion. Every single number looks strong on its own, but the market’s reaction is to sell.

TSMC is expanding capacity at scale—where is the money going? Into pouring capacity into AI chips. The question is whether demand for AI chips can actually absorb this round of疯狂 (frantic) capital expenditures, or whether this is a self-reinforcing overheating driven by the supply side, ultimately ending with demand coming in short of expectations. The stronger TSMC is, the sharper this question becomes—this is the real reason the market is selling.

Flows of funds further confirm this. Retail investors net sold $125 million worth of SanDisk last week, and the total trading value in retail individual stocks hit a historical record of $370 billion. This isn’t a normal profit-taking cycle—it’s capital systematically exiting tech stocks. Morgan Stanley expects DRAM contract price growth to peak in Q4 2026, meaning the valuation re-rating process hasn’t ended yet, and this drop may not be done.

I think this selloff isn’t a short-term sentiment swing—the market is repricing the AI investment return cycle. Over the past 2.5 years, the semiconductor sector’s rally has been based on the assumption of unlimited AI demand. Now people are starting to ask: where is the ceiling? Once this question is taken seriously, the valuation logic changes.

A technical bear market is the outcome, not the start.

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DYOR Not investment advice