Chip ETF Draws $3.5bn in New Money Even as a Brutal July Exposes the Sector's Fault Lines

Investors pour $3.5B into chip ETFs amid July sell-off, betting on AI-driven demand and supply constraints through 2028.

The VanEck Semiconductor UCITS ETF closed Friday at €89.23, up 0.92 percent on the day — a modestly reassuring finish to a week that left the fund nursing a 4.45 percent loss. But look beneath the daily noise and a more striking picture emerges: investors are pouring record sums into a sector that just suffered its worst month since the 2008 financial crisis.

In the five trading days through August 1, the US-listed sister fund SMH absorbed net inflows of $3.52 billion, according to TipRanks, even as its price slipped 1.46 percent over the same stretch. That pattern — buyers stepping in on dips rather than heading for the exits — is the clearest signal yet that the AI-driven semiconductor trade retains its grip on investor imagination, despite the carnage on the price charts.

A July to Forget

The numbers from last month are sobering. The European-listed fund lost 16.9 percent in July, its worst monthly showing since 2008, with the sell-off accelerating after a Chinese report triggered a broad derating of the sector. The secondary article's monthly figure of 13.75 percent reflects a slightly different measurement window, but both tell the same story: July was brutal.

The damage was compounded by an extraordinary episode in South Korea. The Kospi index shed over 17 percent in three July sessions before staging the largest single-day gain in its history on July 31, surging 17.91 percent. The whipsaw was driven by forced selling in leveraged single-stock ETFs tied to Samsung Electronics and SK Hynix — two names that together account for roughly half the Korean benchmark. Regulators responded by temporarily banning new single-stock leveraged products and raising minimum deposits to 30 million won. The market capitalization of domestic leveraged ETFs collapsed from around $52.5 billion to roughly $19 billion.

Yet the underlying business fundamentals in Korea tell a different story. SK Hynix posted second-quarter operating profit of 60.54 trillion won, up 557 percent year over year, while Samsung's semiconductor division delivered 89.2 trillion won. Samsung, for its part, expects memory-chip shortages to persist through 2028 — a supply constraint that should keep pricing firm across the chain.

The Fundamentals That Keep Buyers Coming

The inflow resilience rests on a handful of heavyweight names in the index, each with its own catalyst. Nvidia, despite US export restrictions, is reportedly seeing Chinese AI firm Moonshot AI source around 20,000 H200 graphics processors via Alibaba as an intermediary, with further price increases already planned. TSMC has announced price hikes of 5 to 10 percent starting in 2027 and is expanding its Arizona fab with a $100 billion investment — moves that have attracted insider buying and, reportedly, purchases from noted fund manager Cathie Wood. Broadcom, though trading 22 percent below its high, is targeting over $100 billion in annual AI revenue by 2027, underpinned by a Samsung partnership valued at more than $200 billion; analysts see 30 to 37 percent upside in the name.

Taiwan's economy, meanwhile, grew 14 percent in the first half — the fastest pace since 1976 — on the back of broadening AI-chip demand. Test-equipment maker Teradyne also reported higher second-quarter revenue and profit, citing AI-related testing technology.

Diverging Views on What Comes Next

The analyst community is split on how to read the current juncture. Morgan Stanley called the AI infrastructure pullback an "unusually attractive buying opportunity" in late July. HSBC, more cautiously, put the odds at 37 percent that overinvestment by cloud giants becomes the dominant market narrative — yet still expects semiconductor stocks to outperform by an annualized 11.8 percent, at the expense of the companies funding those capital expenditures. Jefferies strategist Chris Wood strikes a more bearish chord, warning that hyperscalers could burn billions on capex and pointing to Alphabet's first negative free cash flow since its 2004 IPO and a 91 percent cash-flow collapse at Meta.

Bernt Berg-Nielsen of Stolt Kapitalforvaltning argues the demand for AI chips remains intact and that the real risk sits on the supply side. Goldman Sachs, for its part, sees only a limited threat from Chinese chipmakers to the ETF's established holdings.

Where the Fund Stands

The technical picture is mixed. The fund's RSI sits at 43.5 — neutral territory, neither overbought nor oversold. Its price stands 8.94 percent below the 50-day moving average of €98.00, suggesting the short-term trend has yet to stabilize. At €89.23, the ETF trades 19.74 percent below its 52-week high of €111.18, though it has more than doubled from its yearly low of €40.70. Year to date, the fund is up 67.51 percent — evidence that the longer-term uptrend, however tested, remains intact.

The next major inflection point arrives August 26, when Nvidia reports quarterly earnings. Given the chip designer's outsized weight in the index, that print is likely to set the tone for the entire sector — and determine whether the inflows of the past week were a smart buy-the-dip or a case of catching a falling knife.