The hottest tech trades of 2026 just got slammed - smart investors are buying anyway

Chip stocks have taken a beating - but there's reason to stay bullish.

A bull market supported by several sectors is much sturdier than one balanced on a tower of parabolic semiconductor stocks.

After one of the most powerful rallies ever seen, the PHLX Semiconductor Index SOX is now in bear-market territory, dropping more than 20% from its highs. Yet the S&P 500 SPX has withstood the heat and is up almost 10% this year so far.

Investor Michael Burry and other AI bears have spent months warning that the Big Tech capex boom cannot last. To them, this latest selloff will look like vindication. But I see a healthier market emerging from it. The market is rotating, not collapsing.

Money is not fleeing the market

The AI investment cycle has not suddenly disappeared just because the stocks stopped going straight up.

Look no further than the Invesco S&P 500 Equal Weight ETF RSP which hit another all-time high last week. More stocks are also trading above their key 200-day moving averages than at any time this year.

Instead, money is rotating out of the most crowded corners of the market and into sectors including healthcare, financials and select megacap tech companies. That's what expanding breadth looks like, as a bull market supported by several sectors is much sturdier than one balanced on a tower of parabolic semiconductor stocks.

And that's a different story than most of this bull run. AI infrastructure stocks looked like free-money machines. Shares of memory companies such as SanDisk $(SNDK)$, server manufacturers including Dell Technologies $(DELL)$ and chip suppliers like Intel $(INTC)$ rose so quickly that investors began treating volatility like an extinct species.

That type of market euphoria is never sustainable and is almost always followed by a steep correction.

That's a good thing. A correction releases pressure from the market's most speculative corners. It resets sentiment, lowers valuations and gives earnings time to catch up with prices. And earnings are growing rapidly. Analysts expect semiconductor profits to rise 133% from a year ago and estimate that chip makers alone could account for nearly half of the S&P 500's second-quarter profit growth.

Chip stocks may not have bottomed, but it's close. As I discussed in my latest Substack newsletter, I've been a buyer of AI stocks this week. In my view, the AI investment cycle has not suddenly disappeared just because the stocks stopped going straight up.

But for those who thought the party would never end, you are learning a valuable lesson.

Your portfolio isn't broken

Volatility is the price of higher returns. You cannot chase stocks capable of gaining 50% or 100% and then act shocked when they fall 20%.

Investors love high-risk tech stocks when they are rising. But they become less enthusiastic when the risk part shows up.

Companies like SanDisk, Dell and Intel can offer substantially more upside than the average S&P 500 component. But that upside comes with significantly more volatility. These are volatile businesses operating in cyclical industries. Owning them means accepting a bumpier ride.

The problem is investors often view every rally as proof they were right and every pullback as proof something has broken.

That is an impossible standard. Volatility is the price of higher returns. You cannot chase stocks capable of gaining 50% or 100% and then act shocked when they fall 20%. And if you have a portfolio full of these high-risk stocks, you are paying for it right now.

Many tickers, one trade

The market pain will always be much worse when your entire portfolio depends on the same theme. Maybe you own a memory producer, an AI server company, a chip-equipment supplier, a data-center operator and several speculative small caps discovered on social media. That may look diversified on a brokerage screen. But it is likely one giant bet on AI capital expenditures spread across multiple ticker symbols.

When the trade works, every position rises together. You feel brilliant. Index funds look boring. Cash feels useless. Defensive stocks seem like a waste of time. Risk management? Never heard of it.

When the market rotates, everything you own falls at once. A normal correction in one industry feels like a market crash, and the damage can pile up quickly when the entire portfolio depends on the same trade.

The solution is to build a portfolio that can handle the ride. AI stocks can still belong in a portfolio, provided they sit on top of a durable core. For many investors, a meaningful allocation to S&P 500 index funds, blue-chip companies, value stocks and cash can serve as ballast. Those core positions reduce portfolio volatility, open up space to take more risk in smaller positions and prevent emotional decisions at the worst possible time.

The market does not need every AI stock to rise at once. The recent correction has served as a necessary relief valve, reducing the risk of a blow-off top while allowing leadership to broaden. If you're invested for a longer bull run, that is a gift you should gladly accept.

Robert Ross is the founder of TikStocks and author of "A Beginner's Guide to High-Risk, High-Reward Investing" (Adams Media, 2022). A former chief equity analyst at Mauldin Economics, Ross writes the investment newsletter Let's Analyze on Substack and hosts the weekly "Room to Run" podcast. He owns shares of Sandisk and Dell.

-Robert Ross

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July 25, 2026 14:59 ET (18:59 GMT)

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