Why Semiconductors and Optics Fell Apart

Gaetano · Gaetano · August 02, 2026 at 21:12 · ⏱ 4 min read  | Read on Substack ↗
Summary
July's semiconductor/optics/AI-hardware selloff was primarily a positioning and leverage unwind rather than evidence of broken end demand. Crowded momentum in the AI-infrastructure trade reversed violently, leaving the sector exposed to further deleveraging while the fundamental buildout debate remains unresolved.
  • •SOXX was still up 67.7% for the year even after July's monthly decline, showing how extended the AI hardware trade had become.
  • •South Korea's KOSPI fell 22% in July, its worst month since 2008, yet still retained a large year-to-date gain after an extraordinary rally.
  • •The optical companies the author tracks fell 30-70% in six weeks, a historic move concentrated in AI hardware, semiconductors, memory, optics, and neoclouds.
  • •Vanda data showed retail net selling as aggressive as during the COVID lows; Goldman's High Beta Momentum Basket posted its worst monthly decline since 2000.
  • •The author attributes the unwind to five factors: crowded starting point, loss of confidence at the margin, high valuation hurdle, forced deleveraging, and China concerns.
  • •Capital rotated away from crowded AI-infrastructure winners toward software, financials, energy, and other areas during the selloff.
Read time 4 min
Length 4,207 chars
Category finance
Ideas
Gaetano Substack author, Gaetano
The article directly notes that SOXX remained up 67.7% for the year even after July's decline, and uses momentum dynamics to explain why the AI hardware reversal was so aggressive. This leaves the sem
The article directly notes that SOXX remained up 67.7% for the year even after July's decline, and uses momentum dynamics to explain why the AI hardware reversal was so aggressive. This leaves the semiconductor complex exposed to further trend-following and deleveraging risk. Risk: If positioning washes out quickly and the underlying AI buildout thesis remains intact, SOXX could stabilize or rebound sooner than the momentum setup suggests.
SOXX
Gaetano Substack author, Gaetano
The article highlights KOSPI's 22% July plunge, its worst month since 2008, while noting it still retained a huge year-to-date gain. Korea's heavily semiconductor- and memory-weighted market is a dire
The article highlights KOSPI's 22% July plunge, its worst month since 2008, while noting it still retained a huge year-to-date gain. Korea's heavily semiconductor- and memory-weighted market is a direct expression of the AI hardware crowding and unwind, so EWY acts as a liquid proxy for that risk. Risk: Korean equities are also influenced by domestic macro, currency, and idiosyncratic factors, so EWY may not perfectly isolate the AI-infrastructure positioning trade.
EWY
More from Gaetano
$AMBA Buyout Rumors. Whose Next?
Jul 31, 21:35
$AXT Blowout Earnings. You've Got To Read This
Jul 31, 04:39
COHU Earnings Tonight. Can It Follow Suit?
Jul 30, 17:03
FORM Post Earnings Debrief
Jul 30, 10:02
AXTI Pre-Earnings Thoughts
Jul 30, 01:20

This newsletter, published August 02, 2026, features Gaetano discussing SOXX, EWY. 2 trade ideas extracted by AI with direction and confidence scoring.

Speakers: Gaetano  · Tickers: SOXX, EWY