JPMorgan Says Buy the Chip Dip as Semiconductor Stocks Bounce Back

TLDR

• JPMorgan says investors should buy the dip in chip stocks after a rough start to H2 2026
• The SOX semiconductor index fell 5.4% last week but opened 2.5% higher Monday
• JPMorgan’s pecking order is semis over hyperscalers over “AI at risk” plays
• The bank is cautious on software, business services and media, calling them “AI cannibalization” trades
• JPMorgan expects broader market participation in H2, with small caps and international markets set to benefit

The chip sector had a tough start to the second half of 2026. The PHLX Semiconductor Sector Index, known as the SOX, fell 5.4% during the shortened trading week before the July Fourth holiday. That was its second straight weekly decline.

But JPMorgan analysts say the weakness is a buying opportunity, not a warning sign.

JPMorgan strategist Mislav Matejka told clients in a note Monday that the semiconductor upcycle is “not peaking anytime soon.” He added that meaningful new supply is unlikely to arrive before 2028.

Markets appeared to agree. The SOX opened 2.5% higher on Monday. The Nasdaq Composite rose 0.7% shortly after the open as the AI chip trade picked up again on Wall Street.

Several stocks that lagged last week led the rebound. Applied Materials, Marvell, and Broadcom all moved higher. Memory stocks including Western Digital, Seagate, and Sandisk also bounced, helping push the Roundhill Memory ETF up more than 6.1%.

Where JPMorgan Sees Risk

While JPMorgan is bullish on chips, the bank is more cautious elsewhere in the AI trade.

JPMorgan said it stays “fundamentally bearish” on what it calls AI cannibalization trades. That includes software, business services, and media. The bank said tactical bounces are possible when these areas get oversold, but the overall view remains negative.

The reasoning is that AI tools are cutting into revenue for companies in those sectors rather than adding to it.

Broader Market Outlook for H2 2026

Beyond chips, JPMorgan is looking for fresh highs in global equities in the second half of the year.

The bank points to a strong earnings outlook, easing inflation pressures, and lighter investor positioning as supporting factors.

Matejka also said the unwinding of the Iran conflict’s market impact could be a key catalyst. He argued that oil prices, inflation expectations, bond yields, and central bank rate projections could all pull back from the moves seen during Q2.

He added that AI is “unlikely to be the only story in town” in the second half. Small caps, cyclicals, and international markets are all expected to benefit as market participation widens.

Stagflation fears, which weighed on sentiment in recent months, are also expected to ease, according to the strategist.

JPMorgan’s overall message is clear. Chips are the preferred way to play AI right now. Other parts of the AI trade carry more risk.

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