The technology-driven momentum that has dominated global markets through the first half of the year is showing significant cracks, with semiconductor and artificial intelligence-related stocks experiencing their steepest declines since early 2025. Investors have begun retreating from the mega-cap technology winners that fuelled portfolio returns, signalling a potential shift in market sentiment as confidence in the AI investment narrative faces fresh scrutiny.
The Philadelphia SE Semiconductor Index has shed approximately 11 percent during the current week, marking what would be its worst weekly performance in more than a year if the decline holds. The index has already fallen nearly a quarter from its peak in late June, putting it firmly into bear market territory. This represents a dramatic reversal from the sector's stellar year-to-date performance, which had seen chipmakers surge nearly 60 percent through early July.
The weakness extended across major semiconductor manufacturers. Nvidia, which has anchored much of the AI rally, declined 3.4 percent, while Advanced Micro Devices dropped 4.9 percent and Applied Materials fell 6.5 percent. Even memory chip producers, which had been particular favourites among investors, shed around 1 percent each. The pullback transcended borders, with repercussions felt from Seoul to European markets, indicating that concerns about the AI trade have become genuinely global.
Investment professionals attribute the sharp correction to multiple concurrent pressures. Toni Meadows, head of investment at BRI Wealth Management, characterises the movement as primarily driven by profit-taking combined with intensifying scrutiny around whether artificial intelligence capital expenditure can sustain the valuations implied by current stock prices. The semiconductor sector, historically cyclical in nature, had seen valuations climb to levels assuming near-perfect demand conditions — a foundation that always carried substantial downside risk given how rapidly the sector had appreciated.
Compounding these valuation concerns are emerging questions about whether leading technology companies will realise meaningful returns from their massive artificial intelligence investments. The unveiling of Kimi K3 by Chinese AI startup Moonshot, positioned as the world's largest open-weight model with 2.8 trillion parameters, has prompted investors to reconsider the competitive landscape and the uniqueness of solutions developed by established Western technology firms. Separately, a report surfaced Thursday suggesting that Alphabet's Google is running several months behind schedule on releasing Gemini 3.5 Pro, its most advanced flagship model — a delay that raises questions about development timelines and execution capability.
The technology sell-off reflects a broader pattern of volatility sweeping through global equity markets in July. South Korea's KOSPI index officially confirmed a bear market status in the previous week, despite remaining up nearly 62 percent for the year. Japan's Nikkei fell into correction territory on Friday, suggesting that Asian technology-dependent economies are particularly vulnerable to shifts in tech sector sentiment. Europe's technology sector, which notched its biggest quarterly jump since 2001 during June, has become one of this week's top sectoral losers.
The magnitude of the shift becomes clearer when examining momentum strategies. The S&P 500 Momentum Index, which had outperformed the broader S&P 500 benchmark by more than two-to-one through the year, has now retreated 10 percent in July alone, compared to a mere 0.8 percent decline in the overall market. This dramatic underperformance of growth-oriented strategies suggests that a fundamental reallocation is occurring rather than a temporary tremor.
What is particularly striking is that traditionally stabilising developments have failed to arrest the decline. Taiwan's TSMC, the world's largest semiconductor manufacturer, and ASML, the Dutch semiconductor equipment maker, both delivered strong forward guidance during the period, yet these typically reassuring signals proved insufficient to stem the selling pressure. This pattern suggests that investor concerns have shifted beyond cyclical industry conditions toward more fundamental questions about the artificial intelligence investment thesis itself.
Notable among the week's additional casualties was SpaceX, which dropped 4.5 percent following a last-second abort of its Starship 13th test flight. The aerospace venture had slipped below its initial public offering price of 135 dollars per share earlier in the week, compounding concerns about the space sector. Related space-focused stocks including Intuitive Machines and Virgin Galactic also declined, suggesting that the enthusiasm that lifted these companies on the prospect of SpaceX's market debut has cooled considerably. SK Hynix's U.S.-listed shares initially fell below their offering price before recovering to close 4 percent higher, though the stock has still lost more than 5 percent across the week.
With semiconductor and technology earnings announcements scheduled for the coming week, including reports from Alphabet, Tesla, and Intel, markets face a critical juncture. These earnings will likely determine whether current weakness represents a temporary correction within a sustained uptrend or marks the beginning of a more significant repricing of technology valuations. For investors and markets across Malaysia and Southeast Asia, where technology exposure in local equity indices and fund portfolios has grown substantially, the outcome of these earnings reveals and the trajectory of the AI trade could have meaningful implications for regional wealth and pension returns.
The pullback underscores a fundamental tension at the heart of the current market environment. While artificial intelligence technology undoubtedly represents a significant long-term opportunity, the speed and scale of investor enthusiasm had compressed into valuations that left little room for disappointment. The current correction, though sharp, may ultimately prove healthy in establishing a more sustainable foundation for technology valuations, though the week ahead will be critical in determining whether selling pressure accelerates or stabilises.
