Throughout the first half of 2026, semiconductor stockshave been the shining stars of the global financial markets.Major producers such as TSMC, Samsung Electronics, and Micron have emerged as winners in this AI cycle. Notably, the IPO of SK Hynix on Nasdaq became the largest foreign company IPO in U.S. stock market history, underscoring that chip stocks are this year's hottest investment theme. However, despite the continued AI growth and strong earnings, market sentiment has begun to shift.
In recent weeks, SK Hynix, Samsung Electronics, and TSMC share prices have simultaneously softened as investors took profits. This prompted global fund managers like BlackRock and Fidelity International to reduce chip stock allocations and question whether the price rises reflect true earnings or if stock prices have outpaced business fundamentals.
Although Asian chipmakers TSMC, SK Hynix, and Samsung Electronics continue to report record profit growth driven by AI demand, institutional investors have begun trimming their positions, believing market expectations may be overly optimistic.
Over the past six months, the combined market capitalization of these three companies has risen nearly $1.8 trillion, with each exceeding a market value of $1 trillion. Together, they account for about 29% of the MSCI Emerging Markets index. This means many emerging market funds tracking the index almost inevitably hold large chip stock positions, making portfolio returns highly sensitive to price volatility in just a few stocks.
Stock price charts clearly reflect this trend. SK Hynix surged nearly 300% from the start of the year before a rapid correction. Samsung Electronics rose about 160%, while TSMC increased around 45-50% but with less volatility, before slowing down recently. The simultaneous pullback in these three stocks indicates investors are reducing risk after prices outpaced short-term fundamentals.
Caroline Shaw, Multi-Asset Fund Manager at Fidelity International, noted that the high weighting of a few stocks in the index, along with speculative leveraged trading in South Korean chip stocks, has led the firm to question whether the market is overheating. This has driven a gradual reduction in growth stock exposure and a shift toward less-followed emerging market equities.
Meanwhile, . BlackRock has signaled a similar stance. Wei Li, Global Head of Investment Strategy, stated the firm has taken profits and reduced overweight positions in emerging market stocks due to volatility in chip and memory shares. Although earnings remain strong, analysts have already raised profit estimates significantly, meaning most positive news is priced in.
Most of the overweight positions held by global funds concentrate in Asian chip stocks, notably Taiwan's TSMC and South Korea's SK Hynix and Samsung Electronics, which benefit directly from AI investments.
This recent reduction does not indicate a loss of confidence in the chip industry but rather a portfolio rebalancing to align closer to benchmark indices after rapid price gains.
Moreover, the underlying business fundamentals of chip producers remain robust. In Q1 alone, Samsung Electronics and SK Hynix earned over $50 billion combined, up from less than $10 billion a year earlier, driven by sustained demand for AI memory chips.
Sunil Tirumalai, Head of Emerging Market Equity Strategy at UBS, believes the chip industry is entering an oligopoly structure with few dominant players capable of generating high profits and pricing power. However, stock markets price future prospects more than current earnings, and investors are increasingly assessing risks of the next cycle downturn.
1. Valuation Risk: Stock prices have outpaced profits. Although earnings continue to grow, rapid share price increases have already priced in high growth expectations, limiting upside unless results exceed forecasts.
2. Concentration Risk: Chip stocks dominate the index excessively. Currently, TSMC, SK Hynix, and Samsung Electronics together constitute nearly 29% of the MSCI Emerging Markets index. SK Hynix alone has a weighting greater than the combined markets of Brazil and South Africa. For many funds, holding a few stocks in such high proportions raises portfolio risk, leading some to hit concentration limits and necessitating gradual reductions.
3. Cycle Risk: New competitors are emerging. Beyond high valuations, the market is watching Intel’s return to the foundry business and Chinese memory producers ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies (YMTC), which plan IPOs to raise funds for capacity expansion. If new supply outpaces AI demand, chip prices and industry profit margins could face pressure.
Overall, investors do not see the chip business as declining. The market still expects AI chip demand to grow, but after strong price gains in the first half, many are choosing tolock in profits and reduce risk.They believe future earnings expectations are largely reflected in current prices, prompting close attention to whether chip makers’ profit growth justifies soaring valuations. This cautious stance explains why global investors are becoming more prudent about chip stocks despite the ongoing AI uptrend.
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Source information Financial Times
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