Semiconductor Sell-Off Deepens as Institutional Traders Eye Momentum Signals, TSMC Guidance Fails to Lift Sector

Taiwan Semiconductor Manufacturing Co. (TSMC) reported a 77% year-over-year profit gain in the second quarter, beating analyst estimates, and raised both its revenue and capital expenditure forecasts for the year. The company now expects to spend upwards of $60 billion on capital investment in 2025, up from a prior projection of about $54 billion, according to a report from Nasdaq. TSMC also signaled confidence that demand for chips and data centers will extend into 2027 and plans to invest an additional $100 billion to expand U.S. chipmaking capacity, as reported by Zerohedge.

Yet the strong results failed to arrest a broad sell-off in semiconductor stocks. TSMC’s American depositary receipts were indicated 4.6% lower in premarket trading, while peers including Micron Technology, Marvell Technology, and Nvidia also declined. Sandisk Corp., a NAND flash memory chip manufacturer, tumbled 9.6% through 11:15 a.m. ET Thursday, according to Nasdaq.

The divergence between solid fundamentals and selling pressure reflects a shift in institutional sentiment. As noted by an institutional trader on Reddit, “We are seeing overall strength in indices but semis are getting sold off despite the good numbers from TSMC, but pressure from Asian hardware and memory stocks is deteriorating sentiment.” The same trader pointed to a sharp decline in momentum: the 17-day rate of change of the Morgan Stanley Tech Momentum Factor has fallen 35%.

The sell-off in Asian markets added to the negative tone. South Korea’s Kospi index dropped 6.4%, with heavyweight memory chipmakers Samsung Electronics and SK Hynix both falling more than 10%, according to Zerohedge. Korean authorities responded by temporarily halting new listings of single-stock leveraged exchange-traded products tied to the chipmakers in an effort to curb volatility.

Traders have become increasingly critical of artificial intelligence-related stocks this year, rotating out of the sector on concerns that heavy capital spending has yet to produce meaningful returns, Zerohedge reported. The rout in Korean tech names accelerated the selling, even as TSMC’s raised projections underlined sustained demand.

“There’s been a lot of concentration in the market and that means there’s little room for error,” said Richard Flynn, managing director at Charles Schwab UK, in comments cited by Zerohedge. “Global geopolitical risk is elevated and so there’s a relative tone of caution fundamentally looking at the macro outlook.”

BRI Wealth Management head of investments Toni Meadows described the current environment as a rotation within the AI trade. “It’s probably a healthy thing to have consolidation. The further things go, the more stretched they get and then the reaction is bigger,” Meadows told Zerohedge.

JPMorgan strategists characterized the market as having “a defensive tilt as the AI theme is poised to move lower,” per Zerohedge. Nasdaq futures slipped 0.3% and Nasdaq 100 contracts dropped 0.8% as of 8:15 a.m. ET, erasing much of the prior session’s gains.

Despite the broad sell-off, some analysts see positives for certain names. Nasdaq noted that TSMC’s increased investment in producing CPUs and GPUs for AI customers should drive demand for complementary NAND flash memory chips from Sandisk. “More investment and more chip production from TSMC should increase demand for Sandisk chips and increase Sandisk’s profits,” the report stated, though it also acknowledged growing competition and the risk of eventual oversupply.

Goldman Sachs observed earlier this week that high-beta momentum experienced its worst monthly plunge since the Global Financial Crisis, as reported by Zerohedge. With signs of memory capacity expansion and rising Chinese competition, investors may begin to look through perceived low price-to-earnings multiples and focus on more cyclical measures such as price-to-book, according to the note.

The sell-off comes amid a broader reassessment of AI-related capital expenditure. TSMC’s raised spending—now $60 billion for the year—underscores the industry’s massive buildout, but traders are increasingly questioning whether hyperscalers are building more capacity than they will ultimately need. For now, the momentum trade that powered this year’s semiconductor rally is showing clear signs of strain.