Renowned Wall Street investor: Chip stocks have reached a "short-term bottom" and are expected to see a strong rebound

Source: Global Market Broadcast

Well-known U.S. technology investor and founder of Nelson Investment Management, Dan Niles, stated that the sharp decline in SK Hynix's share price, as well as the entire semiconductor sector, marks a “short-term bottom” for artificial intelligence (AI) stocks. He noted that this dramatic sell-off was due to passive forced liquidations, rather than a fundamental collapse in the industry.

Niles made these remarks after SK Hynix missed its Q2 operating profit consensus and simultaneously lowered its fiscal year 2026 capital expenditure guidance by 11%.

While he acknowledged that this downward revision in capital spending provides ammunition for investors who argue that the AI cycle has already peaked, Niles insisted this is merely a short-term “speed bump.”

He pointed out that recent market trends have been driven by forced liquidations and margin calls on retail and hedge fund accounts, resulting in a “short-term bottom” and accelerating market cleansing, as major brokers do not want a repeat of the Archegos-style blowup.

Recent semiconductor sell-offs have been exceptionally severe. Niles noted that since the peak on June 22, the S&P 500 has only fallen 2.1%, the Nasdaq is down 6.6%, but the Philadelphia Semiconductor Index (SOX) has plunged 28.6%.

In addition, the Morgan Stanley Momentum Index fell 38.0%, and the TMT Momentum Index plummeted 53.5%. Niles said that the magnitude of the decline in this market is extremely rare in history.

However, Niles remains strongly optimistic about the underlying industry fundamentals. He compared the current market environment to the 1995 tech stock correction: at that time, Windows 95 underperformed expectations, and Intel was forced to write down $1 billion in inventory. “Today, companies simply do not have any memory inventory issues on their balance sheets,” he said.

With the rise of Agentic AI, these technologies require massive computing power support. Niles believes that although the top 1% of companies are figuring out ways to reduce token consumption, the remaining 99% are still expanding their use of computing power. Therefore, he predicts that the sectors hit hardest during this brief correction will experience a strong rebound.