Sharp contrast! U.S. chip stocks mark "the best quarter ever," while Nvidia falls far behind.

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U.S. chip stocks posted historic gains in the first half of 2026, but not everyone benefited from the feast. Nvidia, the leading AI chipmaker, has risen only about 7% this year, ranking at the bottom among semiconductor index constituents—a stark contrast to the overall sector’s exuberance.

As of Tuesday’s close, the Philadelphia Semiconductor Index rallied 88% in the second quarter, marking its best quarterly performance ever, with a cumulative gain of 101% in the first half, potentially set to deliver the strongest annual performance since the internet bubble in 1999.

In comparison, the Nasdaq 100 rose 28% during the same period, and the S&P 500 rose 15%, both far lagging the chip sector. The driving force behind this rally is the market’s strong bet on AI infrastructure demand.

However, while celebrations are underway, last week the Semiconductor Index slumped 7.9%, its biggest weekly drop since April 2025. On Monday this week, it dropped 3.2% intraday before rebounding to close up 3.8%, with the sharp volatility prompting investors to reconsider the sustainability of this rally.

Meanwhile, Nvidia's relative underperformance reflects AI chip demand dispersing to a broader range of semiconductor companies. Whether Nvidia can regain dominance with the next-generation Vera Rubin hardware remains a focus for the market.

Best Quarter Ever: Memory Chips Lead, Gains Dwarf the Index

The biggest winners in this round of chip stock rally are concentrated in the memory and storage sectors.

Sandisk leads S&P 500 constituents with an 857% year-to-date gain; Micron follows closely with a 300% rise, its market value exceeding $1 trillion, making it one of the world’s largest American memory chip manufacturers. Western Digital, Seagate Technology, and the strongly rebounding Intel round out the top five in terms of gains.

Sean Sun, portfolio manager at Thornburg Investment Management, said: "We're seeing investors chasing the bottleneck in the semiconductor sector, which currently favors the memory segment and is positive for Intel’s recovery as a foundry."

Meanwhile, Korean memory giant SK Hynix is seeking to raise $29.4 billion in the U.S. market, further underscoring the capital allure of the memory segment.

Nvidia Falls Behind: AI Chip Demand Diversifies, Competitive Landscape Shifts

Nvidia is the most notable "laggard" in this rally. As the world's largest company by market value and synonymous with AI chips, Nvidia has only risen about 7% this year, ranking at the bottom among Philadelphia Semiconductor Index constituents. Broadcom, with a roughly 7.9% gain, is also far behind the overall sector.

Analysts attribute Nvidia’s lagging performance to the large expenditures on AI chips being spread across a wider range of semiconductor companies, with competition expanding from direct battles with AMD to custom chip designers and CPU specialists like Intel.

Sean Sun explains: "Nvidia and Broadcom are encountering those bottlenecks—they’re no longer the highly elastic names they used to be. I think they’ll still do well, but now investors want greater elastic exposure to the strongest theme."

The current key question for the market: Can Nvidia’s next-generation Vera Rubin hardware establish enough of a performance advantage to once again become the AI infrastructure supplier of choice? However, according to Barron's, even if its performance impresses, big tech may be reluctant to rely excessively on a single supplier, especially as capital spending faces shareholder pressure.

Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, wrote in a research report: "The drop in mega-cap cloud names' share prices this month shows shareholder pressure for justifying expenditures is rising. We acknowledge that there is a marginal increase in the risk of slowing capital expenditure growth."

Valuation Divergence: Nvidia Hits Recent Lows, Some Stocks Severely Overextended

Though the overall sector’s valuation is clearly high, internal divergence is extremely pronounced.

The Philadelphia Semiconductor Index currently trades at about 26 times expected earnings, well above the 10-year average of 19 and near the recent peak of 30 set in 2024. In comparison, the Nasdaq 100’s P/E is 23; the S&P 500’s is 20.

Within the sector, ARM Holdings Plc’s 12-month forward P/E tops 140 times, while Intel’s is around 100 times—both severely overextended by traditional valuation standards.

Nvidia sits at the other extreme—its forward P/E is around 18, the lowest since 2018, well below its 10-year average of 36. Micron’s forward P/E is around 8; some on Wall Street interpret this low valuation as a warning sign that revenue and profits have peaked.

Bloomberg Intelligence data shows analysts have become increasingly optimistic about chip stocks, expecting industry earnings to grow 49% by 2027, up from 35% expected in April; revenue growth expectations have also been revised up from 29% to 37%, far outpacing S&P 500 consensus (earnings growth 17%, revenue growth 7.4%).

Volatility Intensifies: Retail Inflows and Hedge Fund Exodus Coincide

Behind the soaring gains, chip stocks' volatility has also hit historical records.

According to Bloomberg, the Cboe Semiconductor ETF Volatility Index, which tracks future volatility of semiconductor ETFs, has risen 83% year-to-date. If maintained through year-end, it would set the largest annual gain in the index's history, and is now at its highest level since Trump’s tariff shock in April 2025.

This month, most trading days for the Philadelphia Semiconductor Index have seen moves of over 1%—including a one-day jump of 7.9% and an extreme one-day drop over 10%. According to Goldman Sachs prime brokerage data, hedge funds are selling technology, media, and telecom stocks at the fastest pace in a decade, while the flood of retail investors has further amplified price swings.

Cantor Fitzgerald Senior Managing Director and Tech Analyst CJ Muse said: "Structural changes among investors are intensifying volatility. Meanwhile, nearly every week sees new white papers on AI capabilities. We’ll be in this highly volatile market for a while."

He also pointed out the market’s biggest concern is whether mega-cap cloud players can maintain and expand capital expenditures beyond 2026, though he personally doesn’t believe the “cash burn tide” will end soon. Currently, Microsoft, Amazon, Alphabet, and Meta all continue aggressive capital spending plans.

Risk Warning and DisclaimerThe market has risks, invest with caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment objectives, financial circumstances, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular situation. Investment is at your own risk. ```