Something unusual is happening in the semiconductor sector: the earnings are outstanding, and the stocks keep falling. Taiwan Semiconductor Manufacturing (TSM) reported a record-breaking Q2 with revenue up 36% year-over-year to $40.2 billion and net income surging 77%. ASML posted a blowout quarter. Samsung Electronics reported a colossal 15-fold surge in operating profit. Yet TSMC sold off 5% after its report, ASML dropped 5%, and Samsung tanked 8%. The iShares Semiconductor ETF (SOXX), which tracks the Philadelphia Semiconductor Index and covers the full AI chip supply chain, briefly entered official bear market territory last week — down more than 20% from its peak.
The disconnect between stellar results and falling prices comes down to what analysts call the “capex-taker problem.” Chip manufacturers and equipment suppliers don’t control their own demand — they build against capital expenditure decisions made by hyperscalers (Microsoft, Google, Amazon, Meta) months or years in advance. Wall Street isn’t worried about today’s orders, which are locked in via long-term contracts. The worry is 2027 and 2028. Are the big tech spenders going to keep pouring hundreds of billions into AI infrastructure, or will the pace slow as AI monetization takes time to deliver returns? Estimates put total tech sector AI spending at roughly $750 billion in 2026 alone. The supply-chain companies are benefiting enormously right now — but if hyperscalers hint at any slowdown in future spend, the market is pricing that risk today.
The critical test arrives this week. Alphabet (GOOGL) reports Q2 earnings Wednesday, followed by Microsoft (MSFT) and Meta (META) on July 29, and Amazon (AMZN) on July 30. Four things matter most: Are hyperscalers maintaining or raising 2026 AI capex? Are they providing constructive commentary on 2027–2028 spend? Is AI investment producing measurable returns? Any hesitation on these points, and SOXX and individual chip names could fall further. Conversely, confident guidance could trigger a sharp relief rally from deeply oversold levels. Investors with a 12-plus-month horizon may find current prices in TSMC (TSM), ASML, and Nvidia (NVDA) compelling entry points — but be prepared for additional volatility before earnings season clears the air.
