Chip ETF's Two-Speed Market: A $1.3 Trillion Wipeout, a Vicious Rebound, and the Valuation Question That Won't Go Away

VanEck Semiconductor ETF down 12.5% in a month, enters bear market after China's cheap AI models trigger selloff, but still up 114% yearly.

The VanEck Semiconductor UCITS ETF is living through one of the most schizophrenic stretches in its history. A brutal sell-off that erased roughly $1.3 trillion in market value from the world's 20 most valuable chip companies has given way to a rebound nearly as violent as the decline that preceded it. The fund closed Friday at €89.23, up 0.92 percent on the day — a welcome reprieve, though it does little to mask the damage done over the past month.

The monthly picture remains stark: the ETF is down 12.50 percent over the last 30 days. Yet zoom out further and the longer-term trajectory tells a different story. The fund has gained 67.51 percent since the start of the year and has more than doubled over the past twelve months, climbing 114.26 percent. That kind of whiplash — triple-digit annual gains punctuated by double-digit monthly drawdowns — has become the defining feature of semiconductor investing in the AI era.

The Catalyst: A One-Two Punch From China

Monday's session offered a stark reminder of how quickly sentiment can sour. The ETF slid to €88.19, a 1.17 percent decline that left the fund trading 20.68 percent below its 52-week high. The trigger came from Beijing, where Alibaba unveiled its most powerful AI model to date, Qwen3.8-Max. Almost simultaneously, an analysis firm reported that DeepSeek's latest model operates at a cost more than a hundred times cheaper than Anthropic's Claude Fable 5.

The Philadelphia Semiconductor Index fell 2 percent in early trading. Memory-chip makers bore the brunt: Micron Technology and SK Hynix each shed roughly 4 percent on US exchanges. Nvidia gave up 1 percent, while AMD lost more than 2 percent. Intel, Marvell, and Qualcomm all slid as well, with equipment makers ASML, Applied Materials, and Lam Research also caught in the downdraft.

What made Monday's move particularly notable was the participation of the equipment manufacturers. These names had held up comparatively well during earlier correction phases, and their capitulation signaled that China-related anxiety was now spreading across the entire value chain rather than remaining confined to a single segment.

A Bear Market in All But Name

Monday's decline extended a downward drift that has been building since June. The chip sector had powered the AI trade like no other industry this year, hitting a record high in June after a remarkable run. From September through that June peak, the Philadelphia Semiconductor Index had surged 158 percent — a figure that puts the S&P 500's 15.7 percent gain over the same stretch into sharp perspective.

Since the June high, however, the index has fallen more than 22 percent, technically placing it in bear-market territory. Two worries have driven the reversal. First, skepticism is growing over whether the enormous AI capital expenditures from major cloud providers remain sustainable. Second, China's progress on cheaper AI models has moved increasingly into focus, raising questions about the pricing power and competitive moats of Western semiconductor leaders.

The technical picture reflects the frayed nerves. The fund currently trades 9.92 percent below its 50-day moving average of €97.90, while sitting 25.41 percent above its 200-day average of €70.32 — a spread that illustrates just how sharply sentiment has flipped in recent months. The 14-day relative strength index stands at 42.4, signaling selling pressure without yet reaching oversold conditions. The annualized 30-day volatility of 58.02 percent underscores the scale of recent swings.

The Rebound: Lam Research Leads the Charge

The recovery that followed was as ferocious as the sell-off. Strong quarterly results from Microsoft and Lam Research ignited a broad rally that rewarded previously beaten-down semiconductor names with double-digit gains. Lam Research jumped 18 percent — its best trading day since 1999.

Memory-chip makers surged in sympathy. Samsung warned that chip shortages could persist into 2028, providing fuel for the rally. Micron climbed 18 percent, while Sandisk jumped 26 percent, both recovering after being pressured by disappointing SK Hynix results. Intel rose 13 percent to $92.67, AMD gained 13 percent to $483.55, and Taiwan Semiconductor advanced 7 percent to $399.36. The iShares Semiconductor ETF added 8 percent.

The rebound followed one of the weakest weeks the industry has seen in years. AMD alone lost roughly $110 billion in market value during the downturn, while Taiwan Semiconductor shed around $119 billion.

Sentiment, Not Fundamentals, Drove the Sell-Off

The correction had less to do with deteriorating business fundamentals than with a crisis of confidence. Michael Field, chief equity strategist at Morningstar, put it bluntly: "Simply put, it's loss of confidence." He sees continued upside potential for many AI names but cautions that their valuations depend heavily on cash flows expected far in the future.

Charlie Dai, an analyst at Forrester, frames the sell-off differently, pointing to concerns that AI infrastructure investment could peak sooner than previously anticipated. Sundeep Gantori, equity investment chief at Standard Chartered, offers a more constructive reading. He attributes the gloom to media reports about China's ambitions in memory chips and lithography equipment, but argues the market still has room for multiple players simultaneously — the AI investment cycle, in his view, continues to support the leading technology companies.

Portfolio Concentration: The Nvidia Factor

Understanding why individual stocks move the fund so dramatically requires a look at its structure. As of late July, the ETF's reference index comprised 26 positions with significant concentration at the top:

• Nvidia: roughly 21.70 percent of net assets
• Taiwan Semiconductor: 9.51 percent
• Broadcom: 6.74 percent
• The ten largest positions combined: over 71 percent

The three heavyweights alone account for nearly 38 percent of the portfolio. A 10 percent move in Nvidia shifts the fund's value by approximately 2.2 percent. The index's construction caps individual stock weightings — a design feature that has shaped the fund's ups and downs over the past year but could not prevent the sector-wide sell-off.

Valuations remain elevated after the historic run-up. According to the VanEck factsheet, the portfolio's price-to-earnings ratio stands at roughly 48.64, with a price-to-book ratio of 13.38. Those levels leave little margin for error should earnings disappoint broadly.

Divergent Forecasts for the Months Ahead

Wall Street's outlook for the remainder of the year is sharply divided. JPMorgan anticipates a summer buying opportunity in chip stocks. Morgan Stanley, by contrast, expects a difficult second half of 2026 for the industry.

Positioning data suggests the trade was extraordinarily crowded before the correction. A Bank of America fund manager survey found that an overwhelming majority of respondents identified long positions in global semiconductor stocks as the most crowded trade of all.

The fund currently sits roughly 19.74 percent below its twelve-month high of €111.18, yet remains nearly 120 percent above its yearly low of €40.70. Whether the current rebound marks a genuine trend reversal or merely a pause within a broader consolidation remains an open question — one that will likely be answered by the same forces that have driven the sector's wild ride: the unrelenting demand for AI infrastructure on one side, and mounting doubts about hyperscaler spending on the other. As long as headlines about Chinese AI progress and cloud investment plans set the pace, the sector's volatility looks set to continue.