Semiconductor stocks were among the most profitable trades on Wall Street this year, but they quickly began to give up those gains.

The iShares Semiconductor ETF (SOXX), which investors use to bet on the chip sector, entered bear market territory after falling from its highs recorded in June.

Veteran economist Ed Yardeni, president of Yardeni Research, believes the sector's losses are not over yet. In a note to clients on Monday, he explained that chip stocks still have room to fall further, even as other parts of the market stabilize.

Why does Ed Yardeni expect further declines?

Yardeni expects the S&P 500 Semiconductor Index to fall an additional 12% to reach its 200-day moving average.

This average represents the stock's average closing price over roughly 200 trading days, and analysts view it as a long-term bottom that stocks typically return to after strong rallies.

According to The Street, the decline has already been severe; the iShares Semiconductor ETF has fallen 20.3% from its peak on June 2, a decline that officially marks entry into bear market territory.

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Meanwhile, the riskier sub-sectors suffered steeper declines, with the Roundhill Memory and DRAM ETF (DRAM) falling about 35% from its peak on June 22.

The unusual aspect of this sell-off is that the main S&P 500 index is still hovering near its record levels around 7,500 points. Most investors haven't noticed a significant decline, as the surface remained calm while the main engine stalled.

3 factors pressuring the chip sector

According to Yardeni's note, three main factors pressured the chip sector simultaneously.

First, forced selling waves in Asia. South Korean chip giants like Samsung and SK Hynix faced margin calls, forcing leveraged investors to sell their shares to cover positions, which negatively affected U.S. chip and memory stocks.

Second, the launch of a cheap AI model by Chinese company Moonshot AI. The Kimi K3 model, which offers high performance at a lower cost, revived concerns that the AI hardware in which heavy investments have been poured may not achieve the expected returns or retain the high value investors anticipated.

Finally, market momentum, or buying stocks simply because they were rising, was the dominant strategy in 2026. Once selling began, there were not enough buyers on the sidelines to slow the pace of the decline.

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Path of the semiconductor stock sell-off

On December 7, 2025, Yardeni downgraded the S&P 500 Information Technology sector to 'neutral' in an early defensive move.

Then on June 2, 2026, the market and the iShares Semiconductor ETF peaked before beginning to decline.

Later, in mid-July 2026, margin liquidations and the launch of the Kimi K3 model hit the sector, while South Korea took steps to curb high-leverage investment in technology funds.

Then on July 19-20, 2026, the iShares Semiconductor ETF confirmed its entry into bear market territory with a 20.3% decline, and Yardeni issued his forecast of an additional 12% drop.

Yardeni's recommendations for investors

Yardeni's advice is not to try to pick the bottom and to stop buying during a continued decline.

Instead, he recommends redirecting investments and moving funds to more stable sectors, favoring overweight positions in financial services and healthcare, particularly biotechnology.

In conclusion, this decline does not mean the collapse of chip stocks, as demand for AI hardware remains intact. But for those considering buying during this downturn, the key message is that the bottom may not have formed yet.