AI Chip Stocks Plunge: Is a Bear Market Beginning? JPMorgan Says Buy Now! Q2 Earnings to Drive Next Rally

Recently, global AI-related and semiconductor stocks have sharply declined. South Korea's KOSPI index has dropped about 25% from recent highs, driven by a slump in memory chip stocks. The Philadelphia Semiconductor Index (SOX) has also retreated by approximately 20%. Individual stocks, including memory giants Samsung Electronics, SK Hynix, and Micron (MU-US), along with numerous AI-related companies, have corrected 20% to 50% from their peaks.

Despite heavy market selling pressure, JPMorgan's latest strategy report indicates that this correction does not signal the start of a long-term bear market in semiconductors. Instead, it may represent a consolidation phase ahead of the next upward leg. The team led by strategist Mislav Matejka argues that the current market is merely undergoing fund rotation, with no fundamental deterioration that would justify prolonged weakness.

JPMorgan points out that the recent sharp decline in leading AI chip stocks has widened the gap between semiconductor valuations and underlying fundamentals—especially evident among European semiconductor firms. Despite continued upward revisions to 12-month earnings estimates, stock performance has lagged the broader market, indicating a clear divergence between sentiment and fundamentals.

The bank maintains that semiconductor earnings outlooks remain robust, while stock prices have already corrected. This makes the summer months an ideal opportunity for investors to build positions at attractive levels, and the firm recommends increasing semiconductor allocations.

Technically, JPMorgan also sees signs that the market is nearing the end of its correction. The report notes that the SOX's Relative Strength Index (RSI) has approached oversold territory. Additionally, market positioning—previously at levels not seen since the 1999–2000 dot-com bubble—has significantly cooled. JPMorgan's tactical positioning monitor also shows that technical positions are steadily contracting, helping to reduce further downside pressure.

JPMorgan maintains a positive outlook on the semiconductor sector, expecting continued strong demand from artificial intelligence, server upgrades, and rapid expansion of high-bandwidth memory (HBM). This will sustain tight supply-demand conditions in both DRAM and NAND markets, with tightness expected to last through 2028. Even after recent price corrections, DRAM prices remain elevated, and global memory chipmakers are projected to see substantial DRAM revenue growth over the next several years.

The upcoming Q2 earnings season will be a key catalyst for whether semiconductor stocks can regain upward momentum. JPMorgan believes TSMC's (TSM-US) recent earnings report already demonstrated sustained strong AI demand—orders continue to grow, and the company provided a positive outlook for capacity planning through 2027, signaling healthy fundamentals across the semiconductor industry.

Beyond JPMorgan, other Wall Street institutions, including Bank of America (BAC-US), continue to express optimism about the semiconductor sector. BofA describes this pullback as more of a "summer reshuffle" following a strong rally, rather than a fundamental reversal. It forecasts that the world's four major cloud providers will spend $851 billion on capital expenditures in 2026, rising to $1.15 trillion in 2027. AI infrastructure investment remains on a high-growth trajectory, and the bank continues to favor names like NVIDIA (NVDA-US), Broadcom (AVGO-US), Marvell Technology (MRVL-US), Credo Technology (CRDO-US), Lam Research (LRCX-US), and KLA (KLAC-US) in the AI and semiconductor supply chain.

In summary, while AI-related stocks face profit-taking and fund rotation pressures, strong corporate earnings, ongoing AI investment, and growing HBM demand continue to support the semiconductor industry's long-term growth trajectory. JPMorgan therefore maintains its "overweight" rating on semiconductors, viewing the recent pullback as an attractive medium- to long-term investment opportunity.