$ACE AI-related stocks recently went through a turbulent period. Korea’s KOSPI, driven largely by memory-chip manufacturers, fell 25% from its recent peak, while the Philadelphia Semiconductor Index (SOX) declined 20%. Individually, memory-chip giants such as Samsung, Micron, and other AI-linked stocks have built losses ranging from 20% to 50% compared with their peaks.
But despite the significant pullback, JPMorgan strategists do not see it as the start of a prolonged decline.
"We do not expect a prolonged weakness in the market as a result of these rotations," wrote strategists led by Mislav Matejka, noting that the MSCI World Index remains only 1% to 2% away from its all-time highs, even as many AI heavyweights record double-digit declines.
JPMorgan’s argument is based on a widening gap between price and fundamentals. The strategists point to European semiconductors, where relative performance has fallen back despite earnings estimates for the next 12 months continuing to rise. "It’s worth noting that an increasing gap is opening up between the relative price of semiconductors and relative earnings, with sector shares reversing despite continued resilience of results," they said.
"With fundamentals staying solid, we believe investors should increase their exposure to the sector over the summer," added the team.
Technical indicators reinforce the argument that the fund is close by. JPMorgan notes that the SOX RSI is "approaching the 'oversold' threshold," while positioning that had pushed chip stock indicators to the highest level since 1999-2000 has been unwound since then. $PROM
At the same time, the bank’s Tactical Positioning Monitor shows that positioning has become "less stretched."
From a fundamental standpoint, JPMorgan’s technology analysts remain optimistic, citing the structural tightness between DRAM and NAND supply and demand — now expected to extend through 2028 — as AI- and server-driven demand, along with the prioritization of HBM, keeps memory supply constrained. DRAM prices stayed high despite the drop in shares, and JPMorgan projects that DRAM revenue will rise from US$143 billion in 2025 to US$1.24 trillion by 2028.
The bank also points to 2Q results as another catalyst, highlighting the "continued order momentum from TSMC and positive comments about capacity plans for 2027" as early confirmation that semiconductors can deliver the solid results needed to support the sector.
In its sector allocation, JPMorgan rates semiconductors as above average, citing "an attractive tactical opportunity after the recent correction." $BANK
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