Why US Semiconductor Stocks Plunged 10% in 5 Trading Days

US semiconductor stocks, which had been leading the stock market's ascent, have recently plummeted 10% over five trading days, drawing significant market attention. The VanEck Semiconductor ETF, a representative ETF for the semiconductor sector, saw a 10% decline during the same period. Individual stocks also experienced sharp drops: AMD fell 14%, Nvidia 8%, Micron 11%, Broadcom 11%, and Marvell Technology 20%.

Experts cite shifts in interest rate expectations, profit-taking, fund reallocation related to the potential SpaceX IPO, and valuation burdens as the primary reasons for the semiconductor stocks' downturn. Analysts noted that stronger-than-expected US employment and inflation data have effectively extinguished hopes for Federal Reserve rate cuts this year. Last week's employment figures and the previous day's May Consumer Price Index (CPI) report underscored the US economy's continued resilience. Consequently, the market's expectation of interest rate cuts within the year has significantly diminished, placing pressure on overvalued growth and semiconductor stocks.

It has been pointed out that semiconductor stocks, having largely driven the stock market rally this year, are now facing valuation pressure. Profit-taking from AI-related stocks, which had surged earlier this year, is also seen as a contributing factor to the recent correction. Giuseppe Sette, co-founder of the AI investment platform Reflexivity, explained that while chip stocks were the main engine lifting the S&P 500's performance, this concentration also led to vulnerabilities. He analyzed that an accumulation of concentrated bets on a few stocks, high valuations, and excessive expectations created a situation where stock prices could be significantly shaken by even minor disappointments. Sette also highlighted ongoing uncertainties surrounding US restrictions on AI chip exports to China and the sector's sensitivity to interest rates as persistent burdens. He assessed the current sell-off as a manifestation of various structural vulnerabilities that accumulated during the rally.

An analysis suggests that investors are selling existing tech stocks to raise capital for potential investments in the upcoming SpaceX IPO. Michael Monahan, portfolio manager at Founder ETF, commented that investors' focus on the SpaceX IPO is diverting attention from other stocks. Alexander Waigh, Chief Investment Officer at Prince Capital, stated that while the macroeconomic environment has worsened, expectations for technological innovation had excessively driven up semiconductor stocks. He believes the current situation reflects investors cashing in profits and reducing their exposure to risk assets.