The marvelous run in chip stocks could be in trouble. The Philadelphia SE Semiconductor Index (SOX), which tracks the PHLX Semiconductor Index (SOX), dropped 4% in early trading Tuesday after a Wall Street Journal report said OpenAI failed to reach its own revenue and new user targets. Nvidia fell more than 3%, Intel slid 5%, while AMD tumbled more than 7%. Chips had been on a tear of late, leading the broader market rebound from the impact of the U.S.-Iran war as excitement around the latest Anthropic AI model led investors back into semis and software names. Over the past month, SOX is up 40% through Monday's close. SOXQ 1M mountain SOXQ in past month That said, the sector was approaching perilous heights, making it susceptible to declines on concerns that the AI trade could lose momentum. "The high momentum + high vol price dynamics in US semis increasingly resemble bubble-like instability," Bank of America analyst Arjun Goyal wrote. He noted that the bank's Bubble Risk Indicator for U.S. semiconductors reached the top quintile — and its highest levels since ChatGPT emerged in late 2022 — "signalling heightened near-term risks." "Another sign of bubble-like dynamics in the semiconductor space has been rampant single stock fragility, exemplified by Texas Instruments' (TXN) third-largest ever 1-day rally on 23-Apr and Intel's (INTC) second-largest ever 1-day rally on 24-Apr," he added. Valuations are also at levels not seen in more than 20 years. The SOX index trades at nearly 53 times trailing earnings, per FactSet. That's near levels not seen since 2004. "The move in the SOX is like stretching a rubber band. As the band stretches further, it doesn't just stop and sit there. It needs to have pressure continually applied to keep it stretched, and if you keep pulling it further, eventually it snaps," wrote Jonathan Krinsky, chief market technician at BTIG.
