Chip Stocks Bounce 7% but Wall Street Splits on Buying the Dip

The iShares Semiconductor ETF rallied 7% on Monday, yet it remains more than 30% below its June highs — and Wall Street cannot agree on whether that gap is a gift or a trap.

The ETF, whose top five holdings on Friday were Advanced Micro Devices, Nvidia, Broadcom, Micron Technology and Intel, has gained more than 45% since the start of 2026. That headline number flatters the sector. A rapid unwinding of the artificial-intelligence trade over the past month has hammered chip names, and last week's midterm election results added fresh concerns about a potential slowdown in data-center buildouts.

Takeaway: investors are buying Monday's bounce, but the sector is still wounded.

Who says the dip is worth buying?

Cantor Fitzgerald analyst C.J. Muse called the selloff an "early holiday gift" and said AI spending plans remain "largely intact." His recommendation: "Within this backdrop, we would recommend being long the SOX broadly into year-end."

Morgan Stanley's Stephen Byrd pushed back against the market's reaction to the midterms. "We believe the market's reaction to the midterms is overdone," Byrd wrote in a Sunday note. In his view, the elections will stretch project timelines to 2028 and 2029 rather than cancel them. A longer buildout, he added, could ease credit concerns and smooth imbalances between chip supply and demand.

Takeaway: the bull case rests on delay, not cancellation, of AI infrastructure spending.

How cheap are Nvidia, Sandisk and Micron?

Both firms rank the compute leaders as their highest-conviction plays. Nvidia remains Wall Street's favorite AI exposure even as a scandal involving CEO Jensen Huang unfolds. Nvidia shares fell 5% on Monday, the same day the company's board launched an independent investigation into Huang's extramarital relationship with an alleged Chinese spy.

At 9 times Nvidia's estimated 2028 earnings, Muse argues the stock is in bargain territory. Even if chip demand weakens, he believes Nvidia's lead in AI accelerators makes it more resilient in a downturn — its chips lead on tokens per watt, a measure of how efficiently they use electricity to run AI workloads.

The beaten-down memory names carry even lower multiples:

• Sandisk trades at 2.6 times estimated 2028 earnings and will generate $82 billion in free cash flow through 2028, according to Cantor Fitzgerald. Morgan Stanley noted the company could use excess cash to buy back more than 50% of its stock between now and 2028, lifting earnings per share.
• Micron trades at 3 times 2028 earnings estimates. Cantor Fitzgerald says Micron could repurchase a substantial portion of its shares over the next two years once federal CHIPS Act restrictions on buybacks expire in December, and could benefit from significant upgrades to earnings estimates.

The damage in memory has been the worst of the selloff. Sandisk and Seagate Technology are down more than 50% from recent highs; Micron is down more than 40%. The Roundhill Memory ETF, which holds Samsung Electronics, Micron, SK Hynix, CXMT and Seagate, has tumbled more than 30% this quarter after rocketing more than 60% in May following its April launch.

Takeaway: the multiples are historically cheap, but only if 2028 estimates hold.

What do the skeptics say?

Not everyone is buying. Jonathan Krinsky, chief market technician at BTIG, noted in a Sunday note that the PHLX Semiconductor Index broke below its 200-day moving average for the first time since May 2025. "Any purchases from May-October are now firmly underwater," he said.

While he acknowledged that "similar initial cracks did see some strong bounces," his data cuts the other way: when the index closes below its 200-day moving average for the first time in at least three months, "50-day returns are actually negative." He called near-term gains a "coin-toss" and set a lower target: "ultimately, we continue to think a move back to the April breakout point" of roughly 8,000 to 8,300 "is necessary, as that would completely retrace the parabolic advance."

Rob Arnott, founder and chairman of Syzygy Asset Management, questioned the sector's fundamentals rather than its chart. "Chip stocks are already priced as if everything is already fabulous," Arnott said in an interview Monday. "The monetization of AI has been hard. It hasn't really happened yet."

Takeaway: valuation support and technical momentum point in opposite directions.

Is the AI trade broken or just bruised?

The context matters for sizing the risk. Even after the brutal drawdown, the PHLX Semiconductor Index was still up more than 40% year-to-date as of Monday afternoon, because investors had piled into AI-exposed chipmakers earlier in 2026. Bargain math based on 2028 earnings assumes the AI buildout arrives roughly on schedule — the very assumption the midterm results put in doubt.

Muse and Byrd are betting timelines slip but survive; Krinsky's history lesson says first breaks below key support have produced negative 50-day returns; Arnott says the sector's revenue story is still unproven. Monday's 7% rally settles none of it — the test comes when the index decides whether 8,000 is a floor or a waypoint.