AI Chip Rally Pauses as Semiconductor Stocks Slide After Record-Breaking Quarter

Chip stocks fell sharply on the first trading day of the third quarter, reversing some of the sector's historic gains from the previous three months. Memory maker Micron dropped 11%, while Intel and Advanced Micro Devices declined 9% and 7%, respectively, as investors reassessed the outlook for AI-related infrastructure spending after an extraordinary rally.

The broader semiconductor sector also came under pressure. The VanEck Semiconductor ETF (SMH), which tracks leading chip companies, fell more than 5% after posting its strongest quarterly performance on record, having surged 71% between April and June. Semiconductor equipment manufacturers, including Lam Research, KLA and Applied Materials, also retreated more than 10% after more than doubling during the second quarter.

One factor weighing on sentiment was a report suggesting Meta could begin renting out excess AI computing capacity. The news sparked concerns that the rapid expansion of AI infrastructure may be reaching a point where supply is starting to catch up with demand, raising questions about future spending by hyperscale technology companies.

While the report pressured many AI infrastructure stocks, Meta shares moved in the opposite direction, climbing more than 9% as investors viewed the strategy as a potential opportunity to generate stronger returns from its large-scale AI investments. Analysts noted that offering computing capacity to enterprise customers could improve the company's monetization of its expanding data center footprint.

Market observers remain optimistic about the long-term outlook for the sector. Analysts argue that hyperscale cloud providers continue to invest heavily in artificial intelligence infrastructure, while earnings growth across the industry remains robust despite recent volatility. Some also point to declining valuation multiples relative to accelerating earnings as a positive signal for long-term investors.

Recent financial results reinforce that view. Micron reported more than a fourfold increase in quarterly revenue, while its gross margin expanded to 84.9%, up from 39% a year earlier. The strong operating performance suggests that demand for AI-related memory and computing hardware remains healthy, even as investors become more cautious following the sector's record-breaking rally.