Storage chip concept stocks experienced a cooling-off in the market. The Philadelphia Semiconductor Index fell into a technical bear market. Analysts believe that market expectations have clearly outpaced reality.

After experiencing a surge driven by the storage chip market, the U.S. semiconductor sector has seen a significant pullback. The Philadelphia Semiconductor Index plummeted by 5.7% at one point on Friday, although the decline narrowed to 1.6% by the close, marking a cumulative retreat of 20% from the historical high at the end of June, officially entering a technical bear market. Prior to this, the index had surged by 105% from its low point in March to the high point at the end of June, doubling in just three months. However, several star chip stocks have recently continued to fall, with Micron Technology, Inc. (MU.US), Arm Holdings (ARM.US), and Intel Corporation (INTC.US) all falling over 30% from their respective highs. James Abate, Head of Fundamental Strategies at Horizon Investments, stated that although the industry fundamentals remain strong, stock price increases have outpaced fundamental improvements. The semiconductor index had previously shown almost a "parabolic rise", and the current adjustment is not surprising. Meanwhile, concerns about the sustainability of the AI investment boom in the market have resurfaced. Investors are beginning to question whether mega-cloud service providers such as Microsoft Corporation (MSFT.US), Amazon.com, Inc. (AMZN.US), and Meta (META.US) can maintain their tens of billions of dollars in AI infrastructure capital spending in the future. In addition, the high valuation of the semiconductor sector has also raised concerns that stock price increases have priced in future growth expectations. Muneeb Muzaffar, Senior Portfolio Manager at Bold Wealth Partners, mentioned that while industry fundamentals remain strong, market expectations have far surpassed reality. Current valuations reflect the most optimistic growth scenarios, and investors are beginning to reassess how much chip companies are truly worth in terms of profitability, and whether the previously high growth expectations need adjustment. In the coming weeks, the AI industry chain will face a key validation window. Alphabet (GOOGL.US) will be the first to report quarterly earnings after the U.S. market closes on July 22nd, followed by Microsoft Corporation (MSFT.US), Amazon.com, Inc. (AMZN.US), and Meta (META.US) in the subsequent week. Their AI capital spending plans and investment returns will become the market's focus. Muzaffar stated that the market needs to see clearer investment returns from the mega-cloud service providers' AI investments, and as long as capital spending can be continuously validated, related companies will continue to invest, benefitting chip manufacturers. However, factors such as high valuations, market sentiment, and fund flows make the short-term trend of the sector more complicated. As one of the leading sectors in this round of the market, storage chip companies have also not been spared. As the market begins to worry about when supply can catch up with the rapidly growing AI demand, Micron Technology, Inc. (MU.US) has fallen by 30% from its high point, while Western Digital Corporation (WDC.US) and SanDisk (SNDK.US) have both dropped by over 35%. Samsung Electronics of South Korea recently reported a 19-fold year-on-year increase in quarterly profit at the beginning of the month. However, due to a previous cumulative rise in stock prices of about 150% this year, the performance did not meet market expectations, leading to a sharp decline in stock prices. The world's leading semiconductor foundry, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), also faced profit-taking. Despite the company raising its full-year capital spending and revenue forecasts this week, its stock price has continued to fall for seven consecutive trading days, with a cumulative decline of 8.8%, marking the longest losing streak since July 2022. However, looking at the performance for the whole year, the semiconductor sector has significantly outperformed the broader market. So far, the Philadelphia Semiconductor Index has risen by about 65% this year, much higher than the 9% increase in the S&P 500 index. According to analysts' summary data on the target prices of the 30 constituent stocks of the index, the market generally remains optimistic that the index could rise by about 34% in the next 12 months. Abate stated that investors do not need to panic excessively about the current correction. "Even though the index has fallen by 20% from its high point, it has only returned to the level of May, so there is no need for an overreaction."