Has the AI investment craze cooled down? ...Semiconductor ETF 'SOXX' plummets, a warning sign the market is watching

▲ Micron (MU), stock price drop/AI generated image ©

Concerns about overheating artificial intelligence (AI) investment have swept across the entire semiconductor industry, causing SOXX, a leading US semiconductor exchange-traded fund (ETF), to plummet from near its all-time high. Market analysis suggests that beyond simple profit-taking, growing doubts about the sustainability of AI infrastructure investment have put the semiconductor industry to a new test.

According to TradingNews, an investment media outlet, on July 2 (local time), the iShares Semiconductor ETF (SOXX) fell by approximately 6.4% from its previous closing price of $640.76, pushing it down to the $600 level, due to the global semiconductor stock sell-off. The media reported that despite US non-farm payrolls increasing by only 57,000 in June, reducing the likelihood of a September interest rate hike to below 50%, concerns about overinvestment in AI infrastructure and capital outflow from large tech stocks outweighed the expected effects of interest rate cuts, leading to a widespread sell-off across the semiconductor sector.

SOXX is a leading semiconductor ETF managing assets of approximately $43 billion, investing in about 30 US-listed semiconductor companies. Micron has the highest weighting at 9.77%, followed by AMD at 9.15%, Intel at 7.39%, Broadcom at 7.26%, and Nvidia at 6.55% due to weighting restrictions. It is characterized by its use of a capped weighting structure rather than a pure market capitalization method, which reduces concentration in specific stocks.

The media identified 'AI Overbuild' concerns as the core reason for the recent sharp decline in semiconductor stocks. It stated that as the perception spread that AI data center and infrastructure investments were outpacing the rate of actual profit generation, the market began to re-evaluate the sustainability of the AI investment cycle. In particular, Micron, the largest holding in SOXX, failed to sustain its stock price increase despite announcing record quarterly results, which heightened concerns that the memory semiconductor industry might be passing its peak.

However, the long-term industry outlook was still assessed positively. The media projected global semiconductor sales to reach approximately $975 billion by 2026, with hyperscalers' capital expenditures expected to exceed $750 billion. Of this, about 75% is expected to be invested in AI infrastructure, suggesting a high likelihood that mid-to-long-term demand, centered on memory and GPUs, will be sustained. Furthermore, institutional investor interest remained robust, with approximately $5.5 billion flowing into semiconductor ETFs in April this year.

Technically, SOXX is being tested at a critical support level around $600. The media suggested $580 as the primary short-term support, with $550 and $500 as additional support zones. On the upside, the recovery of its all-time high of $656 will be a key turning point. The media predicted that future earnings reports from semiconductor companies, hyperscalers' AI capital expenditure plans, and the results of the US Federal Open Market Committee (FOMC) scheduled for July 28-29 will be key variables determining SOXX's direction.

*Disclaimer: This article is for investment reference only and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*