The Paradox of Performance
AI hardware companies, ranging from memory chip manufacturers to semiconductor factory firms, have faced a sharp market correction despite reporting robust second-quarter earnings. After a historic run-up in the first half of 2026, where many stocks climbed triple digits, the sector is currently experiencing double-digit declines. Analysts suggest that the market has shifted its criteria: beating earnings expectations is no longer sufficient; investors are now demanding concrete evidence of sustainable, multi-year growth.
According to Morningstar senior equity analyst Phelix Lee, the issue lies in the “priced for perfection” nature of the market. “In all regions, expectations were very high and baked in multiyear double-digit growth,” Lee notes. Consequently, even spectacular results are being met with skepticism if the accompanying guidance fails to exceed already lofty projections.
Notable Market Stumbles
The impact of this shift is visible across major industry players. Sandisk (SNDK), which previously enjoyed a 750% surge this year, saw its stock slide 13% over two sessions following guidance that missed expectations, despite a 50% rise in quarterly sales. Similarly, AMD (AMD) experienced a 10% decline after its sales outlook failed to impress investors, despite exceeding analyst expectations for the second quarter.
The trend extends beyond the US market. In South Korea, chip giants Samsung and SK Hynix faced divergent reactions. While Samsung reported a record 1,800% surge in operating profit, the stock failed to gain momentum. SK Hynix, meanwhile, saw its shares nosedive following a modest miss on revenue and profit targets.
Leverage and Market Sentiment
The sell-off has been exacerbated by a wider unwinding of leveraged positions. July saw significant volatility, particularly in South Korea, where the Kospi index plunged 25% due to forced selling. Industry experts point to a combination of profit-taking, the collapse of specific AI-focused investment funds like ‘Situational Awareness’, and a broader reassessment of capital expenditure (capex) returns as primary drivers of the instability.
“Fundamentally, investors were looking for justifications for return on AI investments, including hardware capex,” explains Lee. As the market moves past the initial excitement of the AI boom, the focus has shifted toward the sustainability of long-term demand and the potential for a slowdown in capital spending.