What goes up must come down, and that is on display right now in one of the hottest trades of 2026.
What we are seeing: On Monday, the Philadelphia Semiconductor Sector Index (^SOX), also known as SOX, just suffered its biggest two-day drop since the late March lows.
The bloodshed is occurring in the momentum names that have led the stock market semi-bubble this year. Micron (MU) and Sandisk (SNDK) have each plunged 14% over the last five sessions. Intel (INTC) is down 17%. AMD (AMD) is down 8%.
The trigger: Despite reporting spectacular corporate profits fueled by an unprecedented AI memory supercycle and rising demand for data center hardware, the chip sector has been hit by the reality of rising bond yields.
The US 10-year Treasury yield (^TNX) has jumped to a 12-month high of 4.61% amid rising inflation fears.
Rising yields are particularly toxic for momentum technology stocks because their sky-high valuations are based on the present value of their projected future cash flows. When yields on safer fixed income rise, the discount rate applied to those distant corporate earnings increases significantly. In turn, that reduces the stock’s trading multiple and prompts institutional investors to shift money from expensive, crowded technology investments into newly attractive, lower-risk debt instruments.
“While bond yields have been rising, the speed of the adjustment is important and could become a trigger for an equity correction,” Goldman Sachs strategist Peter Oppenheimer said in a new note today. “Strong moves in bond yields have coincided with negative equity returns. Rising government borrowing is an additional factor driving longer-term yields higher across all bond markets.”
He added: “Political developments can quickly undermine confidence in government funding as they compete to raise money in an environment where capital spending is increasing in the private sector. A sharp rise in bond yields from current levels presents significant additional risk to equity investors.”
In a nutshell: The fundamentals of semiconductor leaders remain strong due to the rise of AI. But the market has shifted its focus toward the valuation of these super-hot stocks rather than revenue and bottom line fundamentals. Be careful when engaging in these actions during recoil: catching a falling knife is not exactly a good idea.
Brian Sozzi is the executive editor of Yahoo Finance and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, instagramand LinkedIn. Story tips? Send an email to brian.sozzi@yahoofinance.com.