Semiconductor selloff hits 15% floor as Samsung, SK Hynix loom

The Philadelphia Semiconductor Index's 15% decline from its June 22 peak has matched the median drawdown of prior tech and AI cycles, while valuations now sit at levels that don't fully price in forward earnings growth.

"The selloff has brought the SOX forward P/E back to levels last seen in early April, while 2026 and 2027 PEG ratios sit at historical lows," Zhang Qiyao's strategy team at CICC wrote. "Current valuations have not yet priced in the earnings growth expected over the next two years."

The SOX now trades at 22.7x forward earnings and 43.9x trailing earnings, both back to levels from early April after the US-Iran ceasefire. The index's 2026 PEG ratio of 0.6 and 2027 PEG of 0.4 are the lowest on record, suggesting the selloff has overshot relative to earnings expectations. For comparison, the SOX averaged a PEG of roughly 1.2x during the 2023-2025 AI rally, meaning the current discount represents a roughly 50% compression from recent history.

The CICC team's analysis of historical drawdowns shows that the SOX and related momentum factors have experienced median corrections of about 15% during both the 1995-2000 tech boom and the current AI cycle that began in December 2022. The current pullback, which started June 22, has already reached that threshold.

Two events this week could test whether the correction has run its course. Samsung Electronics is expected to report a roughly 18-fold jump in operating profit on July 7, driven by memory chip demand, with FactSet consensus estimating DRAM revenue up 424% year-over-year and NAND revenue up 302%. Two days later, SK Hynix will list on US exchanges — a move that echoes TSMC's 1997 US listing, which saw its ADR gain more than 10% in five trading days even during a weak US tech environment. A similar reception for SK Hynix would provide a powerful sentiment boost for the sector.

Valuations Flash Historical Lows as Earnings Catch Up

The SOX's valuation compression stems from a divergence between falling stock prices and rising earnings estimates. While the index has dropped 15% since June 22, the CICC team found that consensus EPS estimates for 25 major AI companies have continued to trend higher. This has pushed the SOX's PEG ratio to levels not seen since the current AI cycle began in December 2022.

At 0.6x 2026 earnings growth and 0.4x 2027 growth, the index is pricing in minimal premium for what remains one of the fastest-growing segments in global equities. The divergence is most pronounced in memory semiconductors, where HBM (high-bandwidth memory) demand from AI data centers has driven a structural upcycle. Samsung and SK Hynix together control more than 90% of the HBM market, making them direct beneficiaries of the AI infrastructure buildout. HBM3E, the latest generation, has become a critical component in Nvidia's H200 and upcoming B100 GPUs, creating a tightly coupled supply chain between memory makers and GPU designers.

The current setup mirrors the pattern seen in early 2024, when a 12% SOX drawdown in April was followed by a 25% rally over the next three months. The key difference this time is that valuations are cheaper relative to earnings growth, with PEG ratios at levels that historically have preceded sustained rallies.

Meta Compute Fears Fail to Dent AI Demand Signals

Concerns that Meta's reported sale of computing capacity indicated a peak in AI infrastructure demand have not materialized in the data. H100 and H200 GPU rental prices have risen over the past two weeks, reversing a brief dip. More importantly, consensus capital expenditure estimates for major cloud providers continue to climb — Google and Amazon have seen their 2027 Capex estimates revised upward, even as Meta's saw a minor downward adjustment.

The CICC team's tracking of 25 AI-focused companies shows EPS estimates have been revised upward across the board, reinforcing the view that the AI investment cycle remains intact. Samsung's earnings preview will offer the first major data point on memory pricing trends for the second half of 2026, with HBM3E pricing remaining a key variable for both Samsung and SK Hynix margins. The SK Hynix US listing, meanwhile, will give US investors direct exposure to the HBM market for the first time, potentially drawing new capital into the memory semiconductor segment.

For investors, the key question is whether the SOX can hold its April support levels — a break below that would challenge the valuation thesis, while a rebound from current levels would confirm the correction as a buying opportunity within a secular uptrend.

This article is for informational purposes only and does not constitute investment advice.