Why The iShares Semiconductor ETF (SOXX) Plunged 21% in July

The iShares Semiconductor ETF (SOXX) plunged 21.2% in July, erasing a portion of its first-half rally of 112.8%. Three catalysts converged to trigger the sell-off: hedge fund manager Michael Burry's public bearish stance on overvalued AI stocks, the launch of China's low-cost Kimi K3 AI model that intensified competition concerns, and the forced liquidation of leveraged AI hedge fund Situational Awareness.

The drawdown followed an extraordinary run in semiconductor equities, with SOXX more than doubling in the six months through June 2026. Despite the sharp retreat, underlying semiconductor earnings reports showed no deterioration in AI chip demand, suggesting the move was driven by positioning and valuation concerns rather than fundamental demand weakness.

The Burry position, historically a market-moving signal, amplified investor anxiety around stretched valuations in the AI supply chain. The Kimi K3 model release introduced a credible low-cost alternative from Chinese developers, raising questions about pricing power for U.S. chip designers. The hedge fund liquidation added technical pressure as levered positions unwound.