US semiconductor stocks sold off sharply on July 7 after a report that China's DeepSeek is developing its own artificial-intelligence chip and disappointing quarterly results from Samsung reignited fears that the AI boom's enormous spending may not justify the sector's valuations. A gauge of semiconductor firms sank more than 4.5 percent, the steepest fall for the market's best-performing corner this year.
The damage was broad across chipmakers. Micron closed down 4.7 percent, with KLA, Marvell Technology, Broadcom and AMD all lower. The VanEck Semiconductor ETF (SMH), a widely held basket of the sector, fell nearly 4 percent to about 581, and the Nasdaq 100 dropped 1.8 percent. The broader tape was calmer: the S&P 500 slipped 0.5 percent and the Dow eased 0.25 percent, or about 131 points, to 52,925, cushioned by strength outside technology.
Two catalysts did the work. Reports that DeepSeek — the Chinese lab whose cheap models jolted the AI trade last year — is designing its own AI accelerator revived the fear that customers will engineer around the dominant US chipmakers, thinning the demand that underpins their valuations. Samsung's quarterly results, meanwhile, failed to reassure investors about memory demand, hitting sentiment across the memory names.
The SMH chart shows how quickly the mood turned. The fund pushed toward 669 in late June on renewed AI optimism, then rolled over through early July, sliding from about 655 on June 30 to 581 by July 7 — a roughly 11 percent give-back in the highest-flying part of the market in barely a week, with July 7 the sharpest single-day drop of the stretch.
A jump in oil prices compounded the pressure by lifting bond yields, which weigh most heavily on the long-duration, high-multiple growth stocks that dominate the chip complex. Higher yields raise the discount applied to the far-off profits that AI valuations are built on, so an energy-driven move in rates hits semiconductors twice.
The episode rhymes with the memory-led wobble The Fold covered at the start of the month, when Micron and its peers slid into a quarter-end earnings run. The recurring trigger is the same: any evidence that AI compute could get cheaper, or that a major buyer might build rather than buy, is now enough to reprice the whole group, because so much of the index's value rests on a continued capital-spending surge.
Not everyone read the drop as a warning. Some strategists framed the selloff as a buying opportunity in the names down the most, arguing the secular build-out of AI infrastructure is intact and that pullbacks in leadership stocks have been shallow and brief through this cycle.
The tension is straightforward. Semiconductors have led the market up on the premise that AI demand and pricing keep climbing; each headline suggesting the opposite — a rival's in-house chip, a soft memory quarter, a competitor's cheaper model — tests how much of that premium is durable. With the group carrying so much of the index, how chips trade from here will shape the direction of the broader market.