Semiconductor stocks made some of the easiest money on Wall Street this year. Now they’re quickly giving back their gains.
The iShares Semiconductor ETF (SOXX), which many investors use to bet on chips, has crossed into bear market territory after falling from its June high.
And one closely followed strategist thinks the damage is not finished.
Ed Yardeni, the veteran market forecaster behind Yardeni Research, told clients on July 20 that chip stocks have room to fall further, even as the rest of the market holds steady.
If you own a chip fund, a memory maker, or a broad tech position, that is a call worth paying attention to.
Why Ed Yardeni thinks semiconductor stocks have further to fall
Yardeni’s warning is clear. He expects the S&P 500 Semiconductors index to drop about 12% more to reach its 200-day moving average, according to Yardeni‘s QuickTakes analysis.
The 200-day moving average is simply the average closing price over the past roughly 200 trading days.
More Chip Stocks:
- Cathie Wood sells $11.7 million of tumbling semiconductor stock
- Micron stock jumps as investors look beyond GPUs in AI chip trade
- Goldman Sachs turns its back on major semiconductor stock
Chart watchers treat it as a long-term floor, the line a stock tends to fall back to after a big run.
That is the level Yardeni thinks chips are heading toward.
The sell-off is already sharp. The SOXX has plunged 20.3% from its June 2 peak, Benzinga reported, the drop that officially defines a bear market.
Riskier corners fell even harder. The Roundhill Memory ETF (DRAM) is down roughly 35% from its June 22 high.
What broke while the broader market stayed calm
Here is the part that makes this sell-off unusual.
The S&P 500 is still sitting near its record, hovering close to the 7,500 level. So most investors checking their broad index funds saw almost nothing wrong.
The surface stayed calm while the engine broke.
The losses were concentrated in one crowded trade, while everything else held together.
Three pressures hit chips at once, according to Yardeni’s note.
1. Forced selling out of Asia
Margin calls landed on South Korean chip giants Samsung and SK Hynix (SKHY). When leveraged traders get a margin call, they are forced to sell to cover their positions, and selling affects U.S. memory and chip stocks.
2. A cheaper AI model out of China
Chinese AI lab Moonshot launched Kimi K3, a 2.8-trillion-parameter open-weight model it claims rivals the best from OpenAI and Anthropic.
Because it delivers high-end performance at a lower cost, it revived the same fear that hit the market during the DeepSeek scare. The fact that AI hardware may not stay as valuable as investors assumed.
3. No buyers left to catch the fall
Momentum, or buying stocks simply because they were already rising, was the strategy that most investors crowded into in 2026. Once the selling started, there weren’t enough buyers left on the sidelines to slow it down, and the drop kept feeding on itself.
How the chip sell-off unfolded
The reversal took shape over several weeks:
- Dec. 7, 2025: Yardeni Research downgrades the S&P 500 Information Technology sector to market weight, an early defensive move.
- June 2, 2026: The broader market and the SOXX both peak before turning lower.
- Mid-July 2026: Leveraged liquidation and Moonshot’s Kimi K3 launch hit the sector; South Korea moves to curb high-leverage tech ETFs.
- July 19-20, 2026: The SOXX confirms a bear market, down 20.3% from its June peak.
- July 20, 2026: Yardeni issues his call for a further 12% drop.
This did not come out of nowhere. Signs of strain had been building for weeks, and it was flagged ahead of TSMC’s July earnings report, when the whole AI trade looked stretched.
What Yardeni tells investors to do instead
Yardeni’s advice comes down to one idea: Do not try to guess the exact bottom.
He warns against “catching falling knives,” which refers to the trap of buying a declining stock, only to watch it fall further.
Instead, he favors a sector rotation, moving money out of the hardest-hit group and into areas holding up better.
Yardeni’s firm keeps an overweight rating on two sectors:
- Financials, helped by a strong investment banking environment
- Health care, especially biotechnology, which has weathered the tech drop
The logic is practical. If chips still have room to fall, parking money in steadier value sectors lets you stay invested without absorbing the worst of the fall.
What this means for your portfolio
This does not mean chip businesses are broken. Demand for AI hardware is still real, and analysts remain split on where the sector goes next.
Even during the slide, Goldman Sachs reset its AMD target higher, and Micron’s (MU) memory pricing story kept some buyers interested.
So the question is not about whether chips recover, but when.
A few things worth watching before calling a bottom:
- Whether the SOXX actually reaches and holds its 200-day moving average.
- Whether forced selling in Korea fully clears out.
- Whether AI spending from big cloud buyers stays strong into the next round of earnings.
If you hold chip stocks for the long term, Yardeni’s call is a reason for caution, not panic. If you were tempted to buy this dip, his message is simple: The floor may not be in yet.
Keep in mind that moving averages can break, and rotations can reverse quickly if AI demand exceeds expectations.
Yardeni himself remains positive about the wider economy, still predicting a “roaring 2020s” run backed by broad corporate earnings.
For now, the takeaway is clear. The chip trade that carried 2026 has cracked, and the strategist who called in the danger thinks there is still more room to fall.
Related: Citi sends warning on semiconductor and hyperscaler stocks
