Chip Stocks Have Been Stars. It Might Not Last.

(ANTHONY WALLACE/AFP via Getty Images)

When it comes to artificial intelligence, semiconductors are the new picks and shovels. Like the suppliers of gold miners before them, chip makers have made a killing amid the frenzy of the AI revolution, shrugging off everything from the DeepSeek scare to tariff and trade worries. Yet some strategists argue that even bulls might want to take a step back from the red-hot stocks, at least temporarily.

That might seem hard to swallow, given the stellar performance by tech in general, and semiconductors in particular this year. Nvidia is proving once again that rather than a Magnificent Seven, you really only need the Magnificent One: While the Roundhill Magnificent Seven exchange-traded fund, which tracks it along with Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft and Tesla —is up just over 6% year to date as of Monday, and 42% from the Post-Liberation Day selloff, Nvidia stock has climbed 30% so far in 2025, and 80% since its April lows. Moreover, while the Nasdaq Composite has climbed about 10% this year and more than a third from April 8, the iShares Semiconductor ETF is comfortably ahead of the index on both counts, and the VanEck Semiconductor ETF has had an even more impressive run.

Still, investors shouldn’t get complacent with that winning streak, argues Jeff Jacobson, managing director and head of derivative strategy at 22V Research.

Cracks are already starting to appear in chips’ dominance, as the VanEck Semiconductor ETF peaked on a relative basis to both the SPDR S&P 500 ETF and the Invesco QQQ Trust ETF since July 15 and has lagged behind both by about 3% since. That may not seem like much, given its meteoric rise, but “the fact that the semis have started to lag even as the market has continued to move higher could be a potential warning sign for the group,” he writes-

Likewise, although second-quarter-earnings season has only recently gotten under way, it’s already been marked by a number of disappointments from companies that had been driven by the AI chip trade. Jacobson highlights that both ASML Holding and Intel stock slumped more than 8% following their reports, while Texas Instruments shares plunged 13%, its worst post-earnings selloff in a decade.

Nor is it wise to ignore the ever-evolving trade landscape, warns Gavekal Research Director Laila Khawaja. The on-again, off-again restrictions on Nvidia sales to China demonstrate the thorny problem of managing the U.S.’s need to be technologically dominant with its desire to secure trade concessions from Xi Jinping.

On one side are “advocates aggressive diffusion of American technology to lock in global dependence on U.S. tech ecosystems,” she writes. “The other camp consists of national-security hawks who believe the top goal should be preventing any advanced U.S.-designed chips from reaching China…The two sides seem to have reached an uneasy compromise,” with sales of lower-tier chips only allowed.

She doesn’t expect the current truce to last, as both the Commerce Department and Congress could move to further limit sales after President Donald Trump and Xi meet. “One way or another, more U.S. restrictions on technology sales to China are just a matter of time,” Khawaja concludes.

As long as AI enthusiasm endures longer term, it’s hard to imagine chips won’t win. Yet it could be a cruel summer for the group.

Write to Teresa Rivas at teresa.rivas@barrons.com