Chip ETF's Wild Week Exposes the Fault Line Between AI Spending and China Fears

Semiconductor ETF falls 4.45% weekly amid China chip fears, but Microsoft and Amazon cloud strength sparks a rebound.

The VanEck Semiconductor UCITS ETF closed Friday at €89.23, up 0.92 percent on the day — a modest rebound that does little to mask the carnage of the past seven sessions. The fund still sits 4.45 percent lower on the week and has shed 13.75 percent over the past month, a brutal stretch that has tested the conviction of even the most committed AI bulls.

A Two-Front Selloff

The trouble began with a familiar specter: China. Reports that Chinese manufacturers are advancing faster than anticipated in critical chip-production technology triggered a wave of selling across European semiconductor names. The news landed with particular force because it arrived alongside a cluster of unsettling developments — Nvidia ceding its crown as the world's most valuable company to Apple, and Chinese memory-chip maker CXMT staging a spectacular Shanghai debut that reignited concerns about pricing stability in the memory segment.

A report from The Information added further fuel, claiming a state-backed Chinese firm had commenced mass production of a key component used in chip fabrication. The damage was most acute in Asia, where Japan's Nikkei 225 tumbled 3.95 percent and South Korea's Kospi collapsed 10.84 percent. Samsung and SK Hynix, the index's heavyweight constituents, plunged 13.4 percent and more than 14.7 percent respectively, while SoftBank and Advantest each fell more than 4 percent.

The pain crossed the Pacific. The Philadelphia Semiconductor Index briefly broke below 11,000 points — more than 25 percent beneath its June high — with memory-chip names bearing the brunt. Micron and Seagate each lost over 8 percent, Western Digital slid nearly 7 percent, and Sandisk cratered 14 percent. In Seoul, Samsung SDI fell 11.37 percent and LG Innotek dropped a staggering 16.29 percent.

The Cloud Comes to the Rescue

The reversal came as swiftly as the selloff itself. Thursday brought a one-two punch of relief: the Federal Reserve held rates steady, and Microsoft shares surged 16 percent after Azure cloud growth blew past expectations. The Nasdaq Composite climbed 2.8 percent, snapping a six-day losing streak. Amazon added another 11 percent on Friday on the back of strong cloud revenue, reinforcing the message that hyperscalers remain committed to pouring capital into AI infrastructure.

The cloud giants' earnings did more than soothe nerves — they reframed the debate. If Microsoft and Amazon are still spending aggressively on AI, the argument goes, then chip demand has a firmer foundation than the China headlines suggested.

A Portfolio Built Differently

Part of the ETF's behavior stems from its construction. AMD leads the fund's holdings at 10.33 percent, followed by Broadcom at 9.57 percent and Micron at 9.39 percent. TSMC accounts for 8.75 percent, while Nvidia — despite its colossal market capitalization — represents just 8.40 percent. The index's rules cap single-stock weightings, preventing the fund from loading up on the sector's biggest winner.

That restraint has paid off handsomely this year. Micron has exploded 223 percent on HBM memory-chip shortages, and AMD climbed 144 percent following a major Meta order. The fund has delivered a 67.51 percent gain since the start of the year — even without Nvidia as its primary engine.

Yet concentration risk cuts both ways. TSMC and ASML together make up nearly 17 percent of the portfolio, meaning a single headline about Taiwan Strait tensions could hit a substantial chunk of the fund in one swing.

Diverging Signals

Strategists remain split on whether the selloff represented a genuine inflection or a buying opportunity. Wells Fargo's Ohsung Kwon points to an unusual development: the correlation between semiconductor stocks and hyperscalers fell to minus 31 percent this month, a historic low. Chips are now trading more in lockstep with classic industrials than with cloud giants — a decoupling that suggests investors are treating the two groups as distinct trades rather than one unified AI bet.

The divergence extends to software. The iShares Expanded Tech-Software ETF and the iShares Semiconductor ETF moved in opposite directions on 32 of the past 60 trading days — the highest figure since both funds launched in 2001. Their 60-day correlation has collapsed from a long-run average around 0.75 to nearly zero.

JPMorgan's Nikolaos Panigirtzoglou offers a more cautious read: deleveraging in tech and semiconductor positions, including memory-chip stocks, has progressed faster than expected. That is painful in the short term, he notes, but it also reduces the risk of forced selling in the weeks ahead.

Memory Prices Tell a Different Story

Those arguing the selloff was overdone point to fundamentals that remain stubbornly strong. DRAM contracts for the third quarter were signed at prices 20 to 30 percent higher than the previous quarter. Google and Meta have inked five-year agreements locking in both prices and volumes. Analysts do not expect meaningful new supply capacity until at least 2028.

The chief investment officer for equities at Standard Chartered strikes a characteristically measured tone: the market is large enough for multiple suppliers to profit and coexist simultaneously, and the AI investment cycle continues to support the leading technology companies.

A Summer of Extremes

The recent swings fit a pattern that has defined the sector all summer. The ETF posted its best first half on record, gaining 82 percent in six months, before giving way to violent two-way volatility once valuations stretched. RenMac's head of technical analysis flagged an activated bubble signal for the SOX index as early as late April — at the time, the only market area considered overheated.

The fund now trades roughly 20 percent below its 52-week high of €111.18, set in June. It sits beneath its 50-day average of €98 but well above the 200-day average of €70.14. Notably, capital has kept flowing in despite the turbulence: US semiconductor ETFs have attracted over $46 billion in new money in 2026, a record annual haul that roughly doubles the cumulative inflows from all years since 2017 combined.

Whether the Microsoft-driven AI euphoria outlasts the concerns about Chinese competition and hyperscaler spending discipline will hinge on the tension between short-term technical weakness and the sector's still-intact long-term uptrend. For now, the fund's 67.51 percent year-to-date gain serves as a reminder that even a sharp July pullback leaves this among the strongest trades of the year.