Semiconductors Lead the Selloff as Competition Threatens Profits

The semiconductor selloff is becoming much more serious. Nasdaq 100 Futures (NQ) are down more than 1%, and the prior pivot low has now been taken out. That opens the door to another move of roughly 1,500 points lower in the futures market. Futures are already indicating a decline of about 300 points before the opening, which could translate into roughly 1,800 points on the Nasdaq Composite Index (IXIC) if the selling continues. There is a strong technical level below that could produce a major bounce, but the market still has more room to fall before reaching it.

The pressure on semiconductors is not just coming from the broader market. Investors are beginning to question whether these companies can protect the extremely high profit margins that supported the rally. When an industry is producing margins of 80% or 90%, other companies will naturally enter that market. China is now doing exactly that.

ASML Holding N.V. (ASML) is being pressured by a Shanghai-based company beginning mass production of similar lithography technology. It does not produce everything ASML offers, but it shows that China is moving into areas where margins remain extremely profitable. That is weighing on ASML and pulling the broader semiconductor sector lower.

ChangXin Memory Technologies (CXMT), a DRAM producer that recently listed in Shanghai, rose 466% after its initial public offering. Its expansion is creating additional concern for Micron Technology, Inc. (MU) and SanDisk Corporation (SNDK), two companies that depend heavily on memory, storage, and strong pricing power.

This is the major risk people need to understand. Micron could sell the same amount of memory it sells today, but if margins fall from 80% to 40%, its profits could be cut in half. Even if sales volume increased by 30% over the next year, the company could still make less money because the margins are lower.

That is also why low P E ratios in semiconductor stocks can be misleading. A low P E can appear near the top of a cycle because earnings and margins are temporarily extremely high. The better long term buying opportunities often appear when P E ratios are high, margins have already collapsed, and the market is no longer pricing in strong earnings.

SanDisk has already fallen more than 50% from its highs and is trading near $1,200. The stock is approaching an important technical area that could produce a 20% to 30% bounce, but I would not treat that bounce as confirmation of a permanent bottom.

The first level where I would consider starting a small position is around $1,180. SanDisk also has support near $1,050 and another support level around $1,000. These prices are beginning to line up with a broader trend line, which creates a support zone rather than one exact entry.

The stock is also sitting near a 50% retracement of its advance from August 2025, and that area lines up with a gap fill. That gives the setup two important technical factors. I would still start small because there is no way to know exactly how far panic selling will push the stock.

If SanDisk bounces from $1,180, that could create a relatively simple trade. If it continues lower, I would preserve enough capital to add gradually around the lower support levels. The position could be built in steps of roughly $50 rather than committing everything at the first price.

Micron is setting up similarly. There is a major gap-fill of about $90 below its current trading level. That is the area where I would become much more interested in the stock. Micron was one of the strongest leaders during the semiconductor rally, and now it is leading the move lower.

Marvell Technology, Inc. (MRVL) is also getting close to an important support zone around $170. That level is only about $10 below its premarket price, so Marvell is approaching an area where buyers may begin stepping back in.

Nvidia Corporation (NVDA) has not experienced the same extreme price swings. Its size and market depth make it less volatile than SanDisk or Micron. Apple Inc. (AAPL) remains slightly larger by market capitalization, and Nvidia’s scale makes it more suitable for investors who want less volatility. For a technical trader, however, the more dramatic opportunities are developing in the stocks that rose the fastest and are now experiencing the strongest fear.

The semiconductor trade is not necessarily over, and these companies could still produce strong earnings over the next several quarters. The concern is that the highs already reached may represent cycle tops. Strong rebounds can still occur, but increased competition and falling margins could eventually lead to more downside.

The earlier rally was driven by extreme greed. The decline is now moving toward extreme fear. I am not trying to predict the exact bottom or wait for prices to return to extreme greed. I am waiting for panic to push quality companies into important support, entering gradually, and looking to exit when prices return to a more reasonable value.