What Happened?

A number of stocks jumped in the morning session after dip buyers returned to the market to capitalize on more attractive valuations following the sector's steep selloff in the previous week, driven by continued optimism surrounding the long-term artificial intelligence investment cycle. The recovery comes after a sharp decline that briefly pushed semiconductor powerhouses into bear market territory, marking their worst weekly drop in over a year. Despite recent market jitters regarding elevated valuations and questions over whether major technology firms will sustain their massive spending on AI infrastructure, underlying confidence in the AI-driven bull market remains intact. This renewed optimism triggered a broad rally across the globe. In Asia, major contract chip manufacturers and designers like Taiwan Semiconductor Manufacturing Company (TSMC) and MediaTek saw significant gains, jumping 3.2% and 9.9%, respectively. The positive momentum carried over into U.S. markets, where premarket futures pointed higher and industry gauges tracking semiconductor performance surged over 4%. Furthermore, a strong start to the corporate earnings season, with a vast majority of early reporters topping Wall Street estimates, provided additional macroeconomic tailwinds. Investors are now closely monitoring upcoming U.S. technology earnings reports for further validation of the semiconductor sector's growth trajectory.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Memory Semiconductors company Seagate (NASDAQ: STX) jumped 10.6%. Is now the time to buy Seagate? Access our full analysis report here, it’s free.
• Memory Semiconductors company Western Digital (NASDAQ: WDC) jumped 13%. Is now the time to buy Western Digital? Access our full analysis report here, it’s free.
• Semiconductor Manufacturing company FormFactor (NASDAQ: FORM) jumped 5.9%. Is now the time to buy FormFactor? Access our full analysis report here, it’s free.
• Semiconductor Manufacturing company Amkor (NASDAQ: AMKR) jumped 6.1%. Is now the time to buy Amkor? Access our full analysis report here, it’s free.
• Semiconductor Manufacturing company Teradyne (NASDAQ: TER) jumped 12.1%. Is now the time to buy Teradyne? Access our full analysis report here, it’s free.

Zooming In On Western Digital (WDC)

Western Digital’s shares are extremely volatile and have had 63 moves greater than 5% over the last year. But moves this big are rare even for Western Digital and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 5 days ago when the stock dropped 8.8% on the news that TSMC paired topline strength with a free cash flow-compressing capital expenditure reset, compounding a sector-wide selloff that began with ASML the day before. TSMC shares fell roughly 4% in the morning session despite a record profit beat. The company raised its full-year 2026 revenue growth outlook to slightly above 40%, but simultaneously increased its capital expenditure guidance to $60–$64 billion, up from a prior ceiling of $56 billion. Management also guided third-quarter operating margins roughly 70 basis points below consensus and warned that overseas expansion and 2-nanometer ramp costs would dilute gross margins in the second half of the year. The market continued to price the semiconductor sector on top-line artificial intelligence demand, which TSMC confirmed remains "extremely robust." However, the capex reset shifts investor focus to cash generation and the explicit cost of staying at the leading edge. Every incremental dollar of TSMC's capex increase could be a drain on near-term free cash flow, compressing the yields needed to justify the sector's lofty valuation multiples. This explains why the broader group sold off despite objectively strong revenue metrics from both TSMC and ASML this week. The read-through for the sector is that scaling AI manufacturing capacity will be exceptionally expensive, forcing a multiple de-rating as profit margins absorb the burden of rapid expansion. The market will now watch upcoming earnings from major hyperscalers to see if downstream software monetization can ultimately justify the massive capital costs flowing through the hardware supply chain.

Western Digital is up 191% since the beginning of the year, but at $546.33 per share, it is still trading 16.2% below its 52-week high of $651.88 from June 2026. Investors who bought $1,000 worth of Western Digital’s shares 5 years ago would now be looking at an investment worth $8,476.

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