SOXX Drops 28% From June Peak; Morgan Stanley Sees 10-15% More Downside

The iShares Semiconductor ETF (NASDAQ: SOXX) closed at $471.51 on October 30, down 28.1% from its June record of $656 and firmly in technical bear market territory. The fund lost 8.24% in a single session after Intel issued weak guidance and investors grew uneasy about how the industry's AI boom is being financed.

Morgan Stanley now expects semiconductor stocks to fall another 10%-15% before the correction ends. Goldman Sachs warns that slowing AI investment growth could weaken chipmakers' earnings.

Why are semiconductor stocks falling?

The selloff reflects a widening gap between what AI infrastructure costs and what it earns back. Amazon reported negative trailing 12-month free cash flow of $42.4 billion, while Alphabet recorded roughly $9 billion in negative quarterly free cash flow. Both companies continue to spend heavily on AI infrastructure.

Negative free cash flow does not automatically mean declining operating profitability. But sustained investment above internally generated cash raises questions about financing costs and returns on capital. For chip suppliers, the risk is that hyperscalers eventually cut orders to protect their own cash flow.

Intel added direct pressure. The company forecast Q4 revenue of $15 billion to $16 billion, below analyst expectations of about $17.1 billion. Its shares fell 28.6% on October 30, even though data center revenue grew 78% to $7.3 billion in Q3. The divergence between AI server demand and a weak PC market did the damage.

SOXX concentrates this exposure. Its five largest holdings — AMD, Nvidia, Micron, Broadcom and Intel — account for roughly 39% of the portfolio, so their earnings expectations and capital spending outlooks drive the fund's performance.

What does Morgan Stanley forecast?

Morgan Stanley chief US equity strategist Mike Wilson expects the semiconductor correction to approach its final stages around mid-November. He identified potential downside of 10%-15% for the Philadelphia Semiconductor Index, with support possibly emerging near 9,500 points.

The forecast was issued before the October 30 selloff and applies to the semiconductor index rather than SOXX directly. Morgan Stanley attributes the correction to tightening financial conditions, AI financing requirements and weaker investor positioning.

The bank also notes that semiconductor earnings depend heavily on spending commitments from a small group of large technology companies. A reduction in hyperscaler capital expenditure could hit multiple manufacturers at once.

Despite these risks, Morgan Stanley maintains its year-end S&P 500 target of 8,000, suggesting the broader equity correction may be nearing its final phase.

Why is Goldman Sachs worried about margins?

Goldman Sachs Research expects hyperscaler capital expenditure to reach $1.2 trillion in 2027 and $1.4 trillion in 2028. Yet the bank warns that semiconductor earnings growth has relied on strong pricing and unusually high margins.

Memory manufacturers have achieved gross margins of roughly 80%, more than twice historical levels. Goldman expects this profitability boost to moderate as supply constraints ease.

The bank estimates that a $250 billion change in hyperscaler capital spending during 2027 could shift S&P 500 earnings growth by about 6 percentage points. Chipmaker earnings have become unusually sensitive to AI investment forecasts.

Bank of America took a more cautious stance on Intel, downgrading the stock from Buy to Neutral and cutting its price target from $145 to $100. Analyst Vivek Arya expects Intel's PC shipments to decline 25%-30% quarter over quarter in Q4, with further inventory adjustments possible in the first half of 2027. The bank also estimates weaker PC demand could create a revenue headwind of up to $750 million for AMD, partly offset by stronger server processor sales.

Where does DBS see opportunity?

DBS expects the semiconductor upcycle to continue through 2027-2028, but argues future performance will depend on AI economics rather than capital expenditure growth alone. The bank identifies high-bandwidth memory, networking semiconductors and optical connectivity as potential beneficiaries of expanding AI infrastructure, since growing AI computing clusters require faster interconnects and greater memory bandwidth.

DBS cautions that falling AI inference costs could eventually reduce infrastructure spending unless higher usage offsets lower prices. The bank therefore favors selective exposure to companies benefiting from supply constraints, sustainable earnings growth and reasonable valuations.

What are the SOXX price scenarios?

Beinsure's analysis identifies three conditional ranges:

• Bearish: $400-$425, if further earnings downgrades, weaker AI investment and tighter credit extend the correction.
• Base case: $460-$500, as SOXX consolidates after October's decline while investors assess updated guidance.
• Bullish: $520-$540, supported by stronger AI infrastructure orders, improving cash flow and renewed institutional demand.

These are Beinsure's analytical scenarios, not investment bank price targets.

BlackRock has announced a 3-for-1 SOXX share split effective November 5, 2026. Post-split, the October 30 close of $471.51 becomes roughly $157.17; the bearish range maps to about $133-$142, the base case to $153-$167 and the bullish range to $173-$180. The split does not change the fund's underlying value.

AMD's earnings on November 3, subsequent semiconductor guidance and hyperscaler capital expenditure forecasts will shape the near-term picture. Beinsure expects continued volatility in November, with SOXX increasingly driven by earnings revisions, financing costs and the ability of AI infrastructure customers to sustain their spending.