Semiconductor stocks experienced a sharp pullback on Wednesday, with Micron Technology falling more than 8% and SanDisk declining over 10%, as investors locked in gains following a record-breaking first half for the sector. The broader selloff also dragged down Advanced Micro Devices (down ~5%), Nvidia (over 2%), and Seagate Technology (more than 6%), while the VanEck Semiconductor ETF retreated 4.7% after surging 72% in the first six months of the year—its best first-half performance since its 2000 launch.
Profit-Taking After Historic Rally
The decline comes after an extraordinary run for chip stocks, driven by surging demand for artificial intelligence-related hardware. Micron had gained more than 230% year-to-date before Wednesday's drop, fueled by AI-driven memory demand. However, market participants are increasingly questioning whether valuations have become stretched as the industry approaches a new expansion phase. Concerns over additional manufacturing capacity announced in South Korea last week have also raised fears that the cyclical memory market could eventually shift from tight supply to oversupply.
The Nasdaq Composite fell more than 0.4% as investors rotated out of technology names after months of strong gains. Retail investor participation, which had amplified the rally, contributed to heightened volatility during the selloff.
Class-Action Lawsuit Targets DRAM Pricing
Adding to the pressure, a new US class-action lawsuit names Micron, Samsung Electronics, and SK Hynix—which together control roughly 90% of the global DRAM market—alleging they deliberately restricted production of conventional DDR3 and DDR4 memory chips to inflate prices. The complaint claims the companies shifted manufacturing capacity toward higher-margin high-bandwidth memory (HBM) used in AI servers, creating an artificial shortage in mainstream memory products. According to the plaintiffs, prices for conventional DRAM have climbed approximately 700% over the past four years.
The lawsuit revives memories of the industry's past legal troubles. In the mid-2000s, Samsung and Hynix pleaded guilty to US Department of Justice charges of DRAM price-fixing, paying criminal fines of $300 million and $185 million, respectively. Micron cooperated with that investigation and avoided a corporate penalty, though one employee later pleaded guilty to obstruction of justice. Legal experts note that proving coordinated supply restrictions remains challenging, but the history adds weight to the latest allegations.
For more on the broader rotation and legal headwinds, see our coverage of Memory Stocks Plunge: Samsung, SK Hynix, Kioxia Drop Up to 33% on Profit-Taking and Legal Woes and Magnificent 7 Shed $2.3 Trillion: Profit-Taking, Rotation to Memory Stocks, and ROI Fears.
Analysts Remain Bullish on Long-Term Outlook
Despite the selloff and legal overhang, analysts continue to project favorable industry fundamentals. KeyBanc analyst John Vinh noted that contract prices for standard DRAM configurations rose about 3% in June from the previous month, while NAND flash prices increased 2.4%. “While the industry is building out capacity in response to AI-driven DRAM/HBM demand, meaningful capacity is not expected until 2027, which still will not be meaningful enough to close the gap,” Vinh wrote. He maintains an Overweight rating and a $1,600 price target on Micron.
UBS analyst Timothy Arcuri also remains bullish, citing Micron's strategy of securing long-term customer agreements with minimum pricing provisions. Those contracts are expected to account for about 40% of company revenue, with management aiming to increase that proportion over time. Arcuri believes this could sustain gross margins of 70% to 75%, lower than the roughly 85% reported in the latest quarter but still significantly above the previous peak of about 62% achieved in 2018. He maintains a Buy rating with a $1,625 price target, while the average Wall Street target stands at $1,543, according to FactSet.
For context on the AI-driven rally and its sustainability, see Micron's 700% Surge: From Commodity Chipmaker to AI's New Bellwether and Michael Burry Shorts Micron, Warns AI Chip Rally Is Overdone.
This article is for informational purposes only and does not constitute financial advice.
