Chip stocks see their best quarter ever — but volatility raises questions over what comes next

Chip stocks are closing out their best quarter ever, but not without some volatility on the way out. The Philadelphia Semiconductor Index climbed 88% in 2Q, its strongest three months on record. That puts the index up 101.1% for the year — a pace that would make 2026 its best since the dot-com year of 1999, dwarfing the Nasdaq 100's 25% quarterly gain and the S&P 500's 14%, Bloomberg reports.

Memory chips, not Nvidia, drove the rally. SanDisk is up 764% this year. Micron has gained 301%, pushing its market cap past USD 1 tn. Nvidia — still the world’s most valuable company — is up just 4.5%, the weakest stock in the index despite trading at 18 times forward earnings, its cheapest multiple since 2018.

But the cracks are starting to show: The index shed 7.9% last week — its worst weekly drop since April 2025 — before swinging from down 3.2% to up 3.8% in a single session on Monday. Volatility, measured by the Cboe Semiconductor ETF Volatility Index, has jumped 83% this year, which would be its biggest annual rise on record, and is sitting near levels last seen during last year’s tariff shock.

Again, it all boils down to speculation that the AI boom — and investments from hyperscalers — is not sustainable. The main doubt that analysts and investors have is whether hyperscalers keep growing their investment beyond this year. So far, Microsoft, Amazon, Alphabet, and Meta are holding the line — it’s hardware makers further down the chain, squeezed by rising prices, and a reportedly wavering OpenAI IPO that are giving the bears evidence of the contrary.

What’s next: Analysts have raised 2027 earnings growth forecasts for the sector to 49%, up from 35% in April — well ahead of the S&P 500’s projected 17%. But with new AI capability papers landing weekly and a retail-heavy investor base still finding its footing in the sector, analysts expect the hyper-volatile market to persist for a while.

MARKETS THIS MORNING-

Asia-Pacific markets are mixed in early trading this morning, with Japan’s Nikkei and the Shanghai Composite in the green while South Korea’s Kospi and the Hang Seng are down. Investors are closely monitoring the latest developments in the talks between the US and Iran and where the JPY will settle against the USD after it slipped to its weakest level in decades.

THE CLOSING BELL-

The ADX fell 0.4% yesterday on turnover of AED 1.0 bn. The index is down 1.9% YTD.

In the green: Orsacom Construction (+3.8%), Sudatel Telecommunications Group Company (+3.5%), and Investcorp Capital (+3.0%).

In the red: Hayah Ins. Company (-4.5%), ADNH Catering (-3.0%), and Abu Dhabi National Co. for Building Materials (-2.4%).

Over on the DFM, the index fell 0.6% on turnover of AED 831.8 mn. Meanwhile, Nasdaq Dubai was down 0.9%.