Philadelphia Semiconductor Index Officially Enters Bear Market; Nvidia Loses Global Market Cap Crown, Bank of America Says 'Don't Panic'

According to Marketwatch, the Philadelphia Semiconductor Index closed down 193.615 points, or 1.63%, on Friday (17th), ending at 11,673.889 points—more than 20% below its recent high, officially entering bear market territory. However, Bank of America analyst Vivek Arya believes this downturn is a 'summer correction, not a fundamental reversal.'

The index plunged as much as 5.7% during Friday’s session before sharply recovering and briefly turning positive, ultimately closing 1.63% lower—highlighting continued market volatility. The semiconductor sector had surged nearly 80% in Q2 but has recently faced selling pressure due to rising memory costs, questions about AI investment returns, and seasonal factors.

On Friday, major chip stocks broadly declined: Broadcom (AVGO-US) fell 0.97%, AMD (AMD-US) dropped 1.03%, Intel (INTC-US) declined 2%, and Nvidia (NVDA-US) slumped 2.21%.

Notably, AI leader Nvidia saw its market cap fall to approximately $4.8 trillion, below Apple’s $4.9 trillion, losing its title as the world’s most valuable company.

Bank of America: Q3 Typically Underperforms

In a report released Thursday, Arya noted that over the past 16 years, the Philadelphia Semiconductor Index has underperformed the S&P 500 in 10 third quarters. Thus, the recent decline reflects not only fundamental concerns about rising memory chip costs but also seasonal volatility in the semiconductor sector.

Despite the sector entering a bear market, Arya remains bullish on semiconductors, networking equipment, and chip manufacturing equipment. He forecasts global AI spending will more than double by the end of 2030, reaching $1.7 trillion.

After a roughly 80% surge in Q2, chip stocks are now seeing clear profit-taking. David Morrison, analyst at Trade Nation, noted that while semiconductor companies’ earnings and demand trends remain strong, some market participants are beginning to question how long the current high growth can last.

Morrison said the key question now is whether this pullback will become another 'buy-the-dip' opportunity or if selling pressure will accelerate, prompting investors to exit en masse. In past bull markets, buying the dip has been effective—but this downturn may not be just a temporary correction.

Chinese Low-Cost AI Models Fuel Concerns

Semiconductor stocks were pressured Friday partly due to attention on Chinese AI unicorn Moonshot AI, which officially launched its next-generation large model Kimi K3 on Thursday evening (16th)—its most powerful model to date.

Jefferies analyst Matt Ma noted in a Friday report that Kimi K3 is an open-weight model with 2.8 trillion parameters, comparable in performance to Anthropic’s Fable 5 and OpenAI’s GPT-5.6 Sol, while offering a cost advantage.

Mark Malek, CIO at Siebert Financial, said the technological gap between the U.S. and China in AI has significantly narrowed. This development comes as Wall Street questions the economic viability of AI investments, further amplifying market unease.

Memory Prices Remain Strong

Memory and storage stocks showed mixed performance on Friday. Micron (MU-US) fell 0.5%, SanDisk (SNDK-US) plunged 4.02%, while Seagate Technology (STX-US) surged 5.66% and Western Digital (WDC-US) rose 2.23%.

Arya pointed out that memory chip spending currently accounts for 35% to 40% of major cloud service providers’ capital expenditures—about 2 to 3 times historical levels.

He expects spot and contract prices for memory components to remain supported this quarter. DRAM spot prices have now risen for eight consecutive weeks, and NAND flash memory prices continue to strengthen.

AI Infrastructure Supports Equipment Demand

Arya stated that improved visibility into the multi-year investment cycle for AI infrastructure supports his growth outlook for the foundry equipment market. He estimates the global foundry equipment market revenue will reach $190 billion in 2027 and increase to $250 billion in 2028.

After TSMC (2330-TW)(TSM-US) raised its U.S. investment commitment to $265 billion, Arya believes this could increase pressure on Intel and Samsung Electronics (005930-KR) to expand their U.S. investments.

Additionally, ASML (ASML-US) forecasts that shipments of DUV (deep ultraviolet) and EUV (extreme ultraviolet) lithography systems will grow over 30% annually in 2027 and 2028.

Arya believes equipment shipment growth and potential price increases will support the broader semiconductor equipment industry.

However, semiconductor equipment stocks broadly weakened on Friday: Applied Materials (AMAT-US) fell 5.57%, KLA Corporation (KLAC-US) dropped 3.02%, and Lam Research (LRCX-US) declined 2.39%.