Chip ETF's Consolidation Deepens as Fed Hawkishness Collides With Unprecedented AI Demand

Semiconductor ETF falls 2.5% after Fed hints at rate hike, but Nvidia's strong earnings and industry growth suggest fundamentals remain solid.

The iShares MSCI Global Semiconductors UCITS ETF closed Friday at €16.51, down 2.5 percent, after the newly installed Federal Reserve chair Kevin Warsh used his first Jackson Hole address to flag inflation as the central bank's "priority focus" and hinted at a possible September rate increase. The sell-off was broad-based rather than company-specific: the S&P 500 slipped 0.25 percent, the Nasdaq Composite shed 0.52 percent, and the PHLX Semiconductor Index fell 2.7 percent, with high-multiple growth names bearing the brunt of the rotation.

Friday's decline capped a turbulent stretch for the sector that began earlier in the week, when chip stocks dragged the broader market lower. Micron Technology dropped 5.8 percent, Advanced Micro Devices lost more than 3 percent, and Broadcom gave up over 2 percent in that initial slide. The comparable iShares Semiconductor ETF (SOXX) fell 2.7 percent on the day, while Nvidia was already nursing its seventh consecutive losing session — its longest such streak since 2022 — following reports that some large customers had been informed of AI-related price increases exceeding 15 percent.

Fundamentals Tell a Different Story

The disconnect between price action and business fundamentals has rarely been starker. Nvidia reported second-quarter revenue of $96.2 billion for the fiscal period ending July 26, up 18 percent quarter-over-quarter and 106 percent year-over-year, with third-quarter guidance of $108 billion coming in comfortably ahead of the $105 billion analyst consensus. CEO Jensen Huang described the outlook as "supply-constrained," expecting shortages to persist through the end of fiscal 2028. The cloud industry's order backlog now exceeds $2 trillion, and capital expenditures from the five largest hyperscalers are projected to reach nearly $800 billion in 2026 and $1.3 trillion by 2027.

Industry-wide data reinforces the momentum. The Semiconductor Industry Association pegged global semiconductor sales at $403.3 billion for the second quarter, up 35.1 percent from the prior quarter, with June alone generating $134.5 billion — a 123.6 percent surge year-over-year. Research firm Omdia has lifted its 2026 growth forecast for global semiconductor revenue to 94.1 percent, projecting a market of nearly $1.6 trillion on the back of "relentless" AI demand for DRAM and NAND. Gartner sees memory alone reaching $837.3 billion in sales, more than half the total market.

Mixed Signals Beneath the Surface

Not every piece of news has been well received. Marvell Technology raised its revenue guidance with its latest quarterly results but simultaneously tempered expectations around the impact of its recent AI chip deal with Google — the stock fell more than 8 percent pre-market, and despite beating earnings estimates, ultimately closed the week down over 9 percent as investors rotated out of richly valued names following the Fed's hawkish signal.

TSMC, meanwhile, continues to underscore the sector's technological momentum. The contract manufacturer has completed development of its 1.6-nanometer A16 process, with mass production slated to begin in the fourth quarter of 2026. The company also distributed roughly $1.14 billion in employee bonuses during the second quarter, up 50.6 percent — evidence of the intense competition for engineering talent fueling the AI boom.

Geopolitical risk adds another layer of uncertainty. Reports indicate the US government is pressing the Netherlands to enforce a near-total ban on sales and maintenance of ASML's DUV lithography systems in China under the proposed "Multilateral Alignment of Technology Controls on Hardware" agreement. ASML itself has shown resilience, buying back roughly €390 million of its own shares daily between August 17 and 21 as part of its ongoing €12 billion repurchase program.

A Technical Picture in Flux

The chart tells the story of a market caught between two forces. The ETF is down 1.7 percent on the week but has gained 9.8 percent over the past 30 days, and remains 73 percent higher year-to-date. At 23 percent below its June 52-week high of €21.52, the fund has given back meaningful ground, though it still trades 136 percent above its September 2 low of €6.98. A technical screener downgraded the ETF from "Hold" to "Sell Candidate" after Friday's session — a reflection of short-term sentiment rather than a verdict on the sector's longer-term trajectory.

The 14-day RSI of 43.5 suggests neither overbought nor oversold conditions, pointing to a consolidation driven by macroeconomic headlines rather than deteriorating fundamentals. BlackRock has announced a share split for the comparable SOXX ETF, effective November 3, with split-adjusted trading beginning November 5 — a mechanical adjustment that leaves shareholder value unchanged.

For all the weekly noise, the fund's 123 percent gain over the past twelve months speaks to the enduring strength of the AI trade. The question hanging over the sector is whether valuation multiples can hold if the Fed follows through on its hawkish rhetoric — or whether the earnings trajectory, still accelerating, eventually renders the debate moot.