Chip Stocks Recover on Wall Street: What Explains the Rise

After days of strong selling pressure, semiconductor stocks led the gains on Wall Street this Tuesday. The Philadelphia SE Semiconductor Index rose 3.7%, marking a second consecutive day of gains. Stocks like SanDisk, Western Digital, and Micron Technology advanced between 7.7% and 10.2%.

The recovery comes at a time when the market is trying to balance two opposing forces: on one side, geopolitical tensions in the Middle East, with new U.S. attacks on Iran and Brent oil above $90 a barrel. On the other, the anticipation of quarterly earnings from major tech companies that may answer the central question of the moment: are the billions invested in artificial intelligence generating returns?

Why Chip Stocks Were Under Pressure

In previous weeks, investors began to question whether the strong appreciation of the semiconductor sector this year had been exaggerated. The skepticism did not arise from nowhere. The heavy investments in AI infrastructure made by so-called hyperscalers, such as Alphabet, Microsoft, and Amazon, have yet to translate into tangible returns proportional to the capital allocated.

It’s the old dilemma of the tech market: spending heavily today with the promise of future revenue only works as long as investors believe in the promise. When that confidence wavers, stocks across the entire supply chain suffer, from chip manufacturers to data storage companies.

The recent correction is reminiscent, on a smaller scale, of what happened in the second half of 2022, when the tech sector faced a widespread sell-off amid the Federal Reserve's monetary tightening. At that time, as we analyzed in the finance section, the market also needed to recalibrate expectations before resuming its upward trajectory.

Alphabet and Intel Earnings May Set the Sector's Direction

The focus now shifts to the quarterly results of Alphabet and Intel, expected this week. The two earnings reports, for different reasons, serve as a barometer for the AI market.

Alphabet is the main reference among hyperscalers. If the parent company of Google reaffirms its plans for investment in AI infrastructure (CapEx), the market is likely to interpret the signal as validation that the growth thesis remains intact. Art Hogan, chief market strategist at B. Riley Wealth, summarized the logic: this assertion from major companies will likely establish a floor for the decline of chip stocks.

Intel is of interest from another angle. The company is trying to reposition itself as a semiconductor manufacturer after years of losing market share to TSMC and AMD. Its numbers reveal whether there is concrete demand for AI chips beyond Nvidia's near-absolute dominance, something investors are closely monitoring, as detailed in our tech coverage.

Middle East Tensions Add Noise but Don’t Dominate the Market

The new U.S. attacks in southern and western Iran, in retaliation for the deaths of U.S. soldiers, have heightened geopolitical tension. Brent oil futures surged to over $90 a barrel, a level that had not been consistently tested for weeks.

Despite the scenario, the three main indices on Wall Street operated in the green. The Dow Jones rose 0.33% to 52,010 points. The S&P 500 advanced 0.41% to 7,473 points, with the information technology sector leading the gains with a 1.3% increase. The Nasdaq Composite recorded a 0.68% rise to 25,680 points.

This resilience suggests that, at least for now, the market is more focused on corporate fundamentals than on geopolitical risk. An Iranian official reported that Tehran received a proposal from mediators for a 10-day ceasefire, which could partially alleviate pressure on oil in the coming days.

What This Means for Those Following the Sector

The central question that this week's earnings should help answer is: does the AI investment cycle still have momentum, or are we facing a bubble of expectations? The numbers so far indicate a sector that continues to grow, but whose speed of expansion is beginning to be questioned.

For investors following technology and the financial market, three points deserve attention. First, the CapEx of hyperscalers: if Alphabet, Microsoft, and Amazon maintain or expand their spending plans, the semiconductor supply chain has support. Second, the diversification of demand for chips: if only Nvidia captures value, the sector as a whole becomes vulnerable. Third, oil above $90 could pressure inflation and reignite the debate over monetary policy and interest rates in the United States.

Tuesday's recovery shows that the market is still willing to give the benefit of the doubt to the AI thesis. But this willingness has an expiration date. It expires this week when Alphabet and Intel release their numbers.

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