JP Morgan Warns of Technical Selloff Risk in Semiconductor Stocks as Crowding, Volatility Rise

According to JP Morgan, semiconductor stocks face heightened risk of a forced selloff as rising volatility could trigger institutional risk-management models earlier this month. The bank's report explains that increased volatility may prompt passive deleveraging among asset managers using Value-at-Risk (VaR) frameworks, potentially sparking a self-reinforcing cycle of price declines and forced selling unrelated to corporate fundamentals.

The Philadelphia Semiconductor Index dropped over 10% earlier this month amid concerns about overheated AI trading, but rebounded to hit fresh highs shortly after. Bank of America's latest fund manager survey confirmed that going long semiconductors is now the most crowded single position among global institutional investors. JP Morgan highlighted that semiconductor valuations have grown six times faster than revenue contributions, more than double the expansion rate of the S&P 500's mega-cap tech stocks, signaling valuation premiums now outpacing fundamental improvements.