Semiconductor ETF’s Steep Correction Tests the Endurance of the AI Investment Thesis

The iShares MSCI Global Semiconductors UCITS ETF has slid roughly 19 percent from its 52-week high of €21.52, touched on June 22, to trade recently at around €17.20. The pullback has been dramatic — the Philadelphia Semiconductor Index has fallen 21.6 percent from its own June 22 record, technically entering bear-market territory — yet the selloff masks a sector that, by most operational metrics, is firing on all cylinders. From the start of the year the ETF still carries an 81.25 percent gain, a reminder of just how stratospheric the preceding AI-driven rally had been.

A fresh catalyst added to the selling pressure in mid-July: Moonshot AI’s Kimi K3, a Chinese large language model with 2.8 trillion parameters, ranked fourth on the BenchLM leaderboard and is set to release its open weights on July 27. The start-up claims its model has closed the gap with leading U.S. rivals, stoking doubts about whether hyperscaler capital spending — already projected to accelerate from 80 percent growth in the first quarter to 92 percent in the third quarter of 2026 — can be justified at current levels. For investors already nervous about nosebleed valuations, the news acted as a trigger. The VanEck Semiconductor ETF (SMH) logged its third weekly loss in four weeks, shedding nearly 9 percent over the period, while the S&P 500 dropped 1.6 percent and the Nasdaq retreated 2.9 percent.

The rout swept across geographies and supply-chain tiers. In Europe, ASMI and ASML each lost 4.6 and 3.8 percent respectively; STMicroelectronics slid 5 percent; Infineon gave up 4.2 percent. Asia fared no better: SK Hynix has plunged 43 percent from its high, Samsung 34 percent, and Japan’s Advantest fell more than 6 percent, with Tokyo Electron and Renesas dropping over 5 percent and 4 percent. South Korea’s Kospi index tumbled more than 4 percent on July 20 alone, a move that analysts at ChosunBiz attributed partly to the mechanical rebalancing of leveraged ETFs in the final minutes of trading, alongside arbitrage between ADRs and local shares. In the U.S., Micron has retreated roughly 20 percent since June 28 and is now trading about 30 percent below its 52-week peak, while Intel has suffered a similar decline. Some $3 trillion in semiconductor market value has evaporated since the end of June.

Should investors sell immediately? Or is it worth buying iShares MSCI Global Semiconductors UCITS ETF USD Acc?

Yet the earnings picture tells a starkly different story. Taiwan Semiconductor Manufacturing Co. (TSMC) reported second-quarter revenue of $40.2 billion, a 34 percent jump from a year earlier, with a record gross margin of 67.7 percent. The foundry raised its 2026 revenue growth forecast to over 40 percent and hiked its capital expenditure budget to between $60 billion and $64 billion, up from a previous $52-56 billion range. Even so, TSMC’s shares slipped more than 2 percent following the release — a sign that investors now demand more than mere profit leaps. Micron’s fiscal third-quarter revenue hit $41.5 billion, quadruple the year-ago figure, and its gross margin reached 84.9 percent. Samsung’s net profit nearly 20-fold, yet its stock fell after its earnings announcement. Analysts at JPMorgan, Barclays and Hana Securities all describe the selloff as overdone relative to fundamentals. JPMorgan points to tight DRAM and NAND capacity through 2028 and forecasts industry revenue rising from $143 billion in 2025 to over $1.2 trillion by 2028. Hana notes that DRAM spot prices climbed 2 percent in a week and 7 percent month-on-month, while net inflows into DRAM ETFs have reached $4.5 billion since early July. For those analysts, the downturn is a mid-cycle reset rather than a structural break.

The coming earnings season from hyperscalers is widely seen as the next inflection point. Alphabet reports on July 22 or 23, Intel on July 24, Microsoft and Meta on July 29, and Amazon on July 30. Lee Jae-man of Hana Securities expects profit surprises at Meta and Amazon, and a capital-expenditure beat from Microsoft, to set the tone for the entire chip sector. Historically, Samsung and SK Hynix have rallied an average of 11 percent and 17 percent respectively in the month following a positive Alphabet surprise. The combined capex of the largest cloud providers is already forecast to accelerate from 80 percent growth in the first quarter to 92 percent in the third quarter of 2026, underpinning demand for the high-bandwidth memory chips that remain sold out well into 2027.

Geopolitical risk adds another layer of uncertainty. Escalating tensions between the U.S. and Iran pushed oil above $90 a barrel, fostering risk aversion across markets. For the ETF itself, technical indicators reflect the whipsaw: the fund trades about 7.3 percent below its 50-day moving average of €18.52 but still comfortably above the 200-day average of €12.63, highlighting how abruptly sentiment has shifted from the AI euphoria. The 14-day relative strength index sits at 42.1, in neutral territory, while the annualized 30-day volatility of 67.4 percent underscores the extreme swings that have become routine for semiconductor investors. Whether the impending hyperscaler results validate the spending thesis or feed further doubts will determine if this correction becomes a buying opportunity — or a deeper reckoning.

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